Uncategorized Nobel Prize winners

Question 1

Sen

Answer 1

1. Measure of degree of poverty - preference intensity, welfare + fair distribution, interpersonal comparison allowed
2. Reject Arrow’s impossibility theorem - irrationality of voting
3. Criticized utilitarianism ( need equity), pareto ( unsatisfactory criterion for distribution) & Malthus ( food acquirement is issue not supply)
4. Policies - support democracies, fair trade
5. Improve quality of poverty statistics

Question 2

Keynes

Answer 2

1. Liquidity preference, Y=C+I > S=I, investment multiplier
2. Demand orientation – Keynesian economics stressed the importance of effective
   demand (aggregate expenditures), as the immediate determinant of income,
   output and employment. Effective demand establishes the economy’s actual
   output which is usually less as if there was full employment – potential output.
3. Economic instability – economy is given to booms and dusts because the level of
   planned investment spending is erratic.
4. Wage and price rigidity – wages tend to be inflexible downward because of the
   institutional factors: union contracts minimum wage laws and implicit contracts.
   Wages are essential for effective demand (inheritance Malthus, lack of effective
   demand may lead to stagnation). Prices are sticky downward, declines in effective
   demand cause reductions in output and employment rather than declines in price
   level. Deflation occurs only during severe depression.
5. Active fiscal and monetary policy ( lower ir) – Keynesian economists advocated that the
   government should intervene actively through appropriate fiscal and monetary
   policies to promote full employment, price stability and economic growth.

Question 3

Hicks

Answer 3

1. Income and substitution effects
2. IS/LM model - National income depends on interest (via investment), Interest rate depends on income level (via liquidity preference)
3. Expansionary effective; Fiscal policy: shifts IS curve, Monetary policy: shifts LM curve

Question 4

Arrow

Answer 4

1. Proved existence of competitive equilibrium ( prices self adjust to eq)
2. Studied moral hazard and adverse selection in medical care/insurance

Question 5

Deaton

Answer 5

1. Tested Friedman’s permanent income hypothesis (consumption is determined by permanent income) > Deaton paradox: data show consumption was too smooth even in
   unanticipated permanent income shocks - Aggregate vs individual/household level data
2. Focus on total level of consumption
3. Almost Ideal Demand System (AIDS): Aggregation over consumers under weaker assumptions →
   Representative consumer. AIDS is standard tool for economic policy: Price indexes, Comparing living standards. ➔ Focus on consumption choices across various commodities
4. Adjust measure of poverty among kids, variation in unit prices across countries.
5. Economic growth can help tackle malnutrition

Question 6

Becker

Answer 6

1. Economic imperialism
   - Extending economic approach to topics that go beyond the classical scope of
   issues.
2. Discrimination will end up to employers may not hire the most
   productive worker. It lowers profits, and hence discrimination will disappear
   in competitive markets.
   ➔ No need for antidiscrimination laws
3. Family is a ‘factory’ which produces goods it wants to consume. income effect + time cost effect - Time cost effect: the more children they have, the less time people have
   to take care of their children.
4. Criminals make rational decisions ➔ Engage in crime if: Expected benefit > (Prob. of detection)*(Penalty) + labor
   cost
5. Formal schooling (general) vs on-the job training (specific) - Education to enhance wages.