Name:___________________________

Economics 854 Final

Prof. Bryan
Caplan

Spring, 2012

__Instructions:__

· You have 120 minutes to complete this exam.

· Write all answers directly on the exam.

· You may use any books, notes, or other materials that you wish, but avoid spending too much time on any one question.

· Partial credit may be awarded on all questions.

· The maximum possible number of points is 120.

· You should have five pages, counting this one.

__Part 1:__ True,
False, and Explain

**(10 points each - 2
for the right answer, and 8 for the explanation)**

State whether each of the following six propositions is true
or false. In 2-3 sentences (and
clearly-labeled ** diagrams**,
when helpful), explain why.

1. “[M]any of Beard’s examples are efficiency
enhancing rather the distributive, and... the most important redistributive
effects were of a different level and kind from the ones considered by
Beard.” (Wittman, *The Myth of Democratic Failure*)

__T, F, and Explain:__ **Buchanan
would largely agree with Wittman’s critique of Beard.**

2. In an “idea trap” model, suppose that ideas remain fixed if growth is good, but improve if growth is mediocre or bad.

__T, F, and Explain:__ **This implies two steady-state
equilibria, one where growth, policy, and ideas are all good, and another where
growth, policy, and ideas are all bad. **

3.
Suppose voters have rational expectations about everything *except* for the effect of policies.

__True, False, and
Explain:__ **If voters vote on a purely
retrospective basis, this will only partially mitigate the effects of their
biased policy beliefs.**

4. __T, F, and Explain:__ **Economic
calculation under worldwide socialism is impossible.**

__Part 2:__ Short
Essays

**(20 points each)**

In 6-8 sentences, answer all of the following questions.

1. In the real
world, to what extent is ideological voting a symptom of expressive
voting? What kinds of voter
behavior are evidence of one but not the other? Explain your answer.

2. Construct a __simple__
example with rational expectations where voters’ asymmetric information *increase* demand for government. Does your example have any real-world
relevance? Why or why not?

3. The Kim family has ruled North Korea for three generations. Doesn’t the stationary bandit model imply that the country should be prospering? If so, what’s wrong with the stationary bandit model? If not, why not?

4. Vigorously defend Tyler Cowen’s “network industries” critique of anarcho-capitalism against his critics.