American Economic History Final Exam

The theme song of Franklin Roosevelt's campaign for the presidency in 1932 was ____.

"Happy days are here again"

Consider the following diagram, which shows the production possibilities curve in WWII. The point for 1945 is correctly located. Identify the point that best represents the economy in 1940.

A

How does Ben Bernanke, formerly the head of the Federal Reserve, explain the persistence of the Great Depression?

claims "asymmetric information" occurred between borrowers and lenders + deflation increases burden of debt and reduces ability to qualify for credit?

Economic historians have used ______ as a proxy for the consumption of alcohol during prohibition.

deaths from cirrhosis of the liver

What did these guys do? Do economic historians think they are responsible for the Great Depression?

increased tariffs on imports, no

In class I argued that efforts to use patriotism to encourage bond sales in WWI were___ because ____.

only moderately successful, interest yields on government bonds did not rise very much after the war

What was the "Hold the Line Order of World War II? Who gave the Hold the Line order?

prices and wages will not be legally raised, President Roosevelt

In class I argued that the main way that the stock market crash of 1929contributed to the onset of the Great Depression was by reducing ____because the crash ____.

purchases of consumer durables, created uncertainty about the future.

What was the Smoot-Hawley tariff? Does the text regard it as a major cause of the Depression?

raised tariffs on a wide variety of goods like agricultural products. text says it was a minor factor.

There is a picture in the textbook of Charlie Chaplin yelling at a crowd.Why is he yelling at the crowd?

selling war bonds.

Who was Harry Hopkins? What was his philosophy of government aid for the unemployed?

social worker and administrator from NY. believed that relief creating jobs that preserved and enhanced skill was better than cash payments

What did Milton Friedman and Anna J. Schwartz consider the most important reform of the financial system instituted during the 1930s?

structural change

During World War II candy makers evaded price controls by

substituting inferior ingredients and selling at the official price

What lessons did the Germans and the Russians learn from the bombing of Guernica and other uses of air power in the Spanish Civil War?

tactical bombing was more effective than strategic bombing

What did Adam Smith think should be the most important source of money for financing wars?

taxes

In the late 1920s many stock market investors came to believe that the economy had entered a "New Age" of high growth and prosperity because, according to the class lecture, ____.

technological progress had been accelerated by the establishment of industrial laboratories

During World War I money was created to pay for a substantial portion of the war effort by having ____

the Federal Reserve purchase government bonds

Milton Friedman and Anna Schwartz argued that the "recession within the depression" was caused by ____

the decision by the Federal Reserve to require banks to hold more reserves

In class I attributed the inflation of World War I primarily to _____.

the increase in the money supply

Here is a picture of a bunch of people under some cocoanut trees. What are they doing?

they are buying land in Florida

What are these guys building? Why are they doing it?

to create an alternative to transporting petroleum by ship

What did Winston Churchill do that caused John Maynard Keynes to write a scathing critique of Churchill in a pamphlet titled The Economic Consequences of Mr. Churchill?

tried to restore the pound at pre-war value

How does the text explain the decline in labor union membership between 1920 and 1923?

- Consumer durables revolution creates demand for industrial labor, and then improvements in hours and wages, for example 48 hr workweek, half day holiday on Saturday, advance in leisure, etc- relative absence of cyclical unemployment, most people have jobs, threat of unemployment low- besides agriculture, struggled in 1920s- employers discriminated against workers joining unions- "yellow-dog" contract - in which new employees promised not to join unions- injunction- courts could forbid picketing, boycotts, feeding of strikers by the union- gov did not interfere besides the whole nationalization of railroads stuff

Who was Charles Ponzi?

- Italian immigrant with a checkered past- fraudulent investment plot: Ponzi Scheme- promised high rates of return, low risk, low return time- invested in international postage stamp- sell stamps for profit, etc- Ponzi never really did this- used new money to pay old clients- Italian Immigrants invested w ponzi; this community disproportionately suffered from his scheme --> interesting connection to Maydoff bc he profited off of Jewish New Yorkers- example of speculative boom

What was the Marx brothers' movie Cocoanuts about?

- Speculative boom called the Florida Land Boom- real estate boom- thought that a railroad was coming, which would be great for tourist industry- price shoot up, and crash in 1926; tourist season disappointing, and then a huge hurricane- creates a banking crisis, and the feds step in and make loans to banks

What percentage of American families had inside flush toilets in 1920?What percentage in 1930? What is the point of looking at such things?

1920: 20% had inside flush toilets1930: 51% had inside flush toilets. Flush Toilets are a consumer durable, which are an important measure

At its maximum during the Great Depression, unemployment reached approximately ___ percent of the labor force. [Count workers employed in government emergency work programs as unemployed, as was the policy at the time, although this isn't crucial to your answer.]

25

You have borrowed $90 and invested $10 of your own money to buy a share of Dayton Wire Wheels. If the stock rises to $105 you can make a quick profit of _____ % on your investment

50%

What effect did Prohibition have on the consumption of alcohol?

Alcohol consumption declined before national prohibition, reached a low level after it was imposed, and rose again after it was removed.

Who is this guy? What theory is he famous for creating?

Alvin Hansen, Secular Stagnation

Who was Henry J. Kaiser? What did he do during World War II?

At Henry Kaiser's shipyards in Portland, Oregon, where some of the most innovative techniques were used, one of the famous Liberty ships was produced, it has been claimed, in a record eight days.

According to the class lecture the failure of one of the following banks greatly intensified the banking panic of 1930. Which was it?

Bank of United States

There is a picture in the text in chapter 21 of a guy wearing a straw hat.Who is he and why is he important?

Bernard Mannes Baruch, a successful Wall Street investor and speculator and strong supporter of the Democratic Party, Wilson named him to head the War Industries Board in 1918.

In the year 1941 how did Germany rank in munitions production compared with the United States and the Soviet Union (U.S.S.R.).

By 1942, U.S. munitions production exceeded that of Germany and Japan combined.

Consider the following diagram that shows the supply and demand for sugar inWorld War I. (This was the example in class of rationing.) The supply and demand curves are shown by the solid lines. The government fixes the price at OC in order to protect consumers and prevent profiteering. Answer the questions by identifying the right line segment by noting the end points of the segment, or the right area by identifying the corners of the area. What will be the amount of sugar supplied to the market?

CD

Continue to use the supply and demand for sugar diagram. The government decides to ration sugar by giving family ration tickets. Each ticket gives them the right to buy one pound of sugar. They must have a ticket or they cannot buy the sugar. How many ration tickets(measured as a quantity of sugar) will the government have to issue to prevent a shortage?

CD

What is a call loan? What conclusion about the call loan market did Eugene White draw from the movement of call loan rates in the late 1920s?

Call loan is a loan that has to be repaid on demand- Galbraith thought that call loans caused bull market- Eugene White says not decisive factor- quantity of call loans rises, but interest on call loans rises also- demand increased more than the supply, causing rate to increase- credit was being pulled into the stock market by rising interest rate on call loans

Who is this? What was the axe for?

Carrie Nation, chopping the bars in saloons

The name of the financial charlatan from the 1920s who attracted poor immigrants to his bank with promises of high interest rates which he paid from the inflow of new deposits was _____ .

Charles Ponz

Which of the following New Deal agencies put thousands of low-skilled unemployed young men to work?

Civilian Conservation Corps

Economic historian Martha Olney drew attention to _____ to help explain the rise in the purchase of consumer durables in the 1920s.

Important developments of "the demand side"

Continue to use the supply and demand for sugar diagram. What will be the shortage caused by price control, if further actions are not taken?

DE

Franklin Roosevelt in a "Fireside Chat" said "We must be the great arsenal of _________ "

Democracy

Who was Dr. Francis E. Townsend? What did he do?

Dr. Francis E. Townsend was an American physician and political activist who became famous during the Great Depression for proposing a pension plan that would provide financial support for the elderly.

During World War II did the United States move to or along the production possibilities curve?

During World War II, the United States moved to a point beyond its production possibilities curve (PPC), also known as the production frontier, in terms of military production.

What was the "Second New Deal about?"

about state welfare. created social insurance like old-age pensions and unemployment insurance. passed Social Security Act.

Who is this? What did he do after the war?

General George Marshall, created a plan for rebuilding Europe

Consider the following table, which is the same as the one discussed in class and presented in the text except for one country. For which country is the data wrong?

Germany

According to economic historian Claudia Goldin what percentage of women who entered the labor force between 1940 and 1944 had dropped out by 1950? What is the meaning of this finding?

Goldin found that more than half of the Rosies who had entered the paid labor force between 1940 and 1944 (the peak year) had dropped out by 1950.

Who is this guy? What were his main ideas about how to deal with unemployment in the Great Depression? What was his life expectancy at age50?

Harry Hopkins, create government jobs

To what factors do Claudia Goldin and Larry Katz attribute "the HighSchool Movement?"

High School Movement - increase in enrollment and graduation rates- return rate from going to high school very high- communities were willing to build and staff high school; thinking about the economic and social opportunities of future generations- ^^ this means that communities with larger social cohesion were more likely to vote for high taxes to finance high schools- ^^ likely not located in big cities, it was farming communities in Midwest

In his second inaugural address Franklin Roosevelt said:

I see one-third of a nation ill-housed, ill-clad, ill-nourished."

What did the economist Irving Fisher say about the stock market in 1929? What did he say about the song "Yes, we have no bananas"?

Irving Fisher said that "The stock market has reached a permanently high plateau."On bananas, he said that the song title was grammatically correct if the question was "Have you no bananas?" idk why that is relevant though

Who was Mary Bailey? What did she do in the Depression?

It's a Wonderful Life - turned over the money she saved for her second honeymoon to her husband so he can end the run on the bank

The Great Contraction of 1929-1933 was an international event in which many nations suffered contractions of industrial production.Some, however, suffered more than others did. Which of the following industrial nations experienced the least severe contraction in industrial production because (I claimed in class) the finance minister adopted a Keynesian policy of deliberate deficit-financed expansion of government spending?

Japan

Economist Joseph Schumpeter was a major critic of the New Deal. What was his complaint with the New Deal?

Joseph Schumpeter, a renowned economist, was critical of the New Deal policies introduced by the US government during the Great Depression in the 1930s. Schumpeter's main complaint with the New Deal was that it interfered with the free market and disrupted the natural process of creative destruction.

Who is this? What economic policy did he propose for ending the Depression and preventing future Depressions?

Joseph Schumpeter, waiting until it's over

What according to Professor Eugene White was the major source of the weakness of rural American banks in the 1920s?

Legislation prohibited branch banking. Small banks couldn't diversify their portfolios and didn't have resources during periods of temporary illiquidity.

Who is this? According to the song, what was she making?

Rosie the Riveter, airplanes

Who was Samuel Gompers? What did he do during the war?

Samuel Gompers, the president of the American Federation of Labor, had served on Wilson's Council of NationalDefense during the war and had attended the negotiations over the Treaty of Versailles where he helped to organize the International Labour Organization.

What was the number 1 song of 1932?

Say Brother Can You Spare a Dime?

All of the following were discussed in class as costs of prohibition except one. Which one does not belong?

Prohibition produced an increase in prostitution and other "substitute vices."

What lesson about the appropriate role of government in the economy did prominent war leaders such as Bernard Baruch draw from the American experience in World War I?

Some people, however, including prominent war leaders, Bernard Baruch in particular, concluded that the economy would work better if the government played a larger role in coordinating economic activity than it had before the war. In retrospect, we can see that American involvement in the war was too brief to allow strong conclusions about the long-term effects of government interventions. But the glow of success that surrounded wartime government programs made them powerful examples in the debate over the appropriate role of government in the economy. The idea that an activist government could improve the functioning of the economy lay dormant during the prosperous twenties but would become important as the Great Depression took shape.

What was the most important means of finance for the United States in WWII? In other words, which means of finance provided the largest share of total revenues?

Tax revenues: As a result of these tax increases and the rapid increase in the tax base, the United States was able to finance about 40 percent of the war with taxes.

The "Austrian School" blames the Great Depression on "distortions" that built up in the 1920s. What were those distortions?

The distortion built up in the stock market and real estate. New Deal policies interfered with adjustment of prices and reallocation of resources slowed recovery.

Why, according to the text, didn't the Depression return after government spending was cut after World War II ended?

The expected postwar depression, however, did not materialize. During the war, people had accumulated large stores of financial assets, typically money and government bonds.Once the war was over, these savings created a surge in demand that contributed to a postwar rise in prices and to the reintegration of workers from the armed forces and defense industries into the peacetime labor force.

What happened to federal government spending as a percentage of total national spending between 1916 and 1918? I won't be asking you to remember an exact number, rather the idea is to get a general sense of what happened.

The financial reflection of the military effort was a tremendous increase in spending by the federal government, from 1.5 percent of GNP in 1916 to 24.2 percent in 1918.

The U.S. joined the gold standard in 1879. What happened to the commitment of the United States to the gold standard during the GreatDepression?

U.S. thought that gold standard undermined the banking system so it broke away and devalued the dollar to make exports more appealing

What did John Maynard Keynes think would happen in this labor market?(Use the diagram shown in Question 5)

Unemployment would tend to remain stuck at 250,000, but the government could solve the problem by creating more demand through government spending with borrowed money

Consider the following diagram, which shows the supply of labor as a function of the real wage and the demands for labor in 1929 and 1933. It shows the hypothetical situation after the stock market crash and banking panic had reduced demand, but before the labor market had begun to adjust. What did Arthur Cecil Pigou think would happen to unemployment in this labor market between 1929 and 1933?

Unemployment would tend to remain stuck at 250,000, but the government could solve the problem by creating sliding wage scales

What famous figure from the 1920s is reported to have said, "once during Prohibition I was forced to live for two weeks on nothing but food and water."

W.C. Fields

Why was there a shortage of meat in 1946?

When legislation authorizing price controls expired in June 1946, Congress passed a new law. When meat prices were re-controlled, ranchers withheld their animals from the market—after all, it was clear that price controls were on the way out and that prices could only go higher—and the result was a meat shortage.

Which famous British political leader said, "I have nothing to offer but blood, toil, tears, and sweat"?

Winston Churchill

Tactical bombing, in contrast with strategic bombing, was aimed at destroying the enemy's ___.

armed forces

What means of finance supplied the largest fraction of total federal spending during World War I?

borrowing Taxation was important, but borrowing was far more important, accounting for 61 percent of total financing.

The National Industrial Recovery Act described best as an attempt to restore full employment ___.

by raising prices and wages

During the Depression a store could display the blue eagle if it was_____.

charging prices in accord with the National Industrial Recovery Act

To judge from the proxy identified in the previous question, which of the following statements about alcohol consumption during the 1920s and 1930s appears to be true? "Alcohol consumption ___."

declined before national prohibition, reached a low level after it was imposed, and rose again after it was removed.

Historian Richard Overy has argued that strategic bombing was crucial to the Allied victory in World War II. According to the class lecture, his central argument was that strategic bombing _____.

diverted the German air force from the Eastern front

What was the Employment Act of 1946? What Federal Agency was created by this Act?

employment act of 1946 promoted max employment, production, and purchasing power. Council of Economic Advisors was added to the Executive Office.

In his famous book about the peace treaty following WWI John Maynard Keynes argued that in order for Germany to pay the reparations required by the Treaty of Versailles she would have to increase her ___ and this would be hard because (in part) because ___.(Hint: this question is about the "transfer problem")

exports, foreign producers of competing goods would lobby for protection

The firebombing of Hamburg was considered a ____ by economist John Kenneth Galbraith because _____.

failure, German U-boat production recovered quickly

During the period of selective controls in World War II, the Office of PriceAdministration tried to control strategic (industrial) prices while it left"unimportant" prices free. In class I argued that this policy was a _____ because ______.

failure, the prices of uncontrolled prices rose and attracted resources

America's greatest economist Irving Fisher _____ prohibition because he thought it _____.

favored, would increase labor productivity

In his open letter to President Roosevelt in 1933, economist John Maynard Keyes wrote:"You, Mr. President, having cast off such fetters, are free to engage in the interests of peace and prosperity the technique which hitherto has only been allowed to serve the purposes of war and destruction." The "technique" that Keynes was referring to was ____.

government borrowing and spending

In his famous open letter to President Roosevelt, John MaynardKeynes wrote that Roosevelt's first priority should be ____.

government spending financed by issuing and selling bonds

Keynesian economists thought that the Great Depression would return after WWII. Why? However, it did not happen. Why?

government spending on weapons would be cut, people spent money they had saved during the war

According to historian Richard Overy what contribution did Allied bombing make to the ultimate victory of the Allies over the Axis?

he argues that strategic bombing was important from a military perspective because it opened a second front against Germany.

One of the important reforms of the Great Depression was the widespread adoption of amortized home mortgages. This meant that for the first time_____. (This question refers to material presented in the previous lecture, but it is still worth learning the answer.)

homeowners would pay off part of the principle of their loan each year

One problem generated by price controls in World War II was "forced up-trading." In this context what is the best example of forced uptrading?

low-price-low-quality clothing disappears

Nazi Air Minister Hermann Göring said"Guns will ____; butter will _____"

make us powerful, make us fat

Why was organized labor (labor unions) optimistic in the immediate aftermath of World War I?

money earnings leaped upward in 1918 by some 22.6 percent, outrunning the cost of living, although it is difficult to be certain about this because price controls distorted the meaning of price indexes. Indeed, real earnings may well have reached an all-time high.

What happened to real earnings of workers in the United States between 1914 and 1920? (Start, middle, end)

money incomes were up 14.5 percent over 1916, but consumer prices were up 16.1 percent—real wages had fallen. The situation was reminiscent of the Civil War. Int he long run, we expect real wages to be determined by the productivity of labor, but in the short run, some wages may prove to be sticky and inflation or deflation can alter the real wage.

Keynesians argued that the reason why deficit spending did not "work"(eliminate unemployment) in the 1930s but did work in World War II was that wartime deficits were ____.

much bigger

Monetarists argued that the reason why increases in the stock of money did not "work" (eliminate unemployment) in the 1930s but did work in WorldWar II was that wartime increases in the stock of money were ____.

much bigger

Which of the following statements describes the Federal Reserve in the summer before the stock market crash of 1929? "The Federal Reserve_____."

was worried about the stock market so it raised interest rates

What was the "sick chicken case" all about?

whether the National Industrial Recovery Act was constitutional

How many banking panics have there been in Canada?

zero

Price Controls

• Food Administration headed by HerbertHoover • Voluntary Conservation - Wheatless Wednesdays - _____ Mondays - Meatless Mondays • Hidden price increases - Victory bread made from less desirable grains

Money and Prices

• Money and prices double (quantity theory) • Wages lagged, but then caught up