ECON 327 Final

Mechanic lien laws grant property rights to labor. They allow labor to make claims against the real property of businesses for work completed or materials supplied. (pg 426)

a. True

Panic 1873

•Country commercial (midwest) banks rely on NYC banks -when conducting inter-regional or international transactions relied on New York City banks -deposits in NYC banks are key for day to day activities -when pressed for cash relied on those deposits •National Banking Act 1862-4 allowed commercial banks to count deposits in New York City banks as legal reserves • •New York City banks invest surplus deposits in the New York call-loan market (short term loan payable on demand (call) and secured with stocks)

Fill in the blank with lenders or borrowers. When inflation is higher than expected, lenders are worse off because of inflation's effect of the real interest rate. (pg 395)

lenders

Alternative explanation to debt-peonage

merchant faces high risk of default (since food had been already consumed), and charges high interest to farmers Inefficient outcome: 1) reduction of agricultural credit (efficient allocation) 2) over-specialization on cotton *Key result still stands

Greenbacks (Week 10)

or U.S. dollars, were first created to finance the civil war and were called as such because their backs were printed in green. Their value against gold depreciated during the war but recovered after the war ended.

Stagflation

persistent high inflation combined with high unemployment and stagnant demand in a country's economy.

Fill in the blank with one of the following terms: constant, negative, positive With falling prices, holding money will generate a positive real return, as was the case between 1929 and 1933.

positive

Banknotes

promissory notes issued by a Federal Reserve Bank Banknotes were legal tender: Converted into specie (gold, sometimes silver) upon demand at the bank of issue (4.85 dollars = 1 poundssterling of gold) Problem when deciding whether to accept payment in a banknote or not: •Only possible to assess quality of banknotes of local banks •Non-local banknotes are expensive to convert (transport costs or discount) and may be risky (quality of issuing bank, counterfeiting) Result: Banknotes are frequently discounted - ie they are not exchanged for the full face value (transaction cost)

Fill in the blank below. The post-Civil War deflation resulted in rising real wages. (pg 396)

real

Fill in the blank below. Financial intermediation helps resources from savers reach borrowers for investment. (pg 394)

savers

Fill in the blank: Because there was no real coordination of the banking system under the National Banking Acts of 1863 and 1864 and because check-clearing was slow and expensive, panics nearly resulted in suspension of payment, a period in which specie would not be returned in exchange for bank notes. (pg 389)

specie

Micro level problem (transaction costs, adverse selection, moral hazard)

•Efficiency implications and effects over investment

Purpose (attempts to reduce financial instability)

•Finance Civil War •Guarantee funds for depositors as much as possible through reserves •Create a uniform currency to overcome the difficulties of so many different banknotes discounted at so many different levels

How the Fed addresses seasonal strain

•From 1916-1918 WWI •After WWI open market operations allows the fed to offset the seasonal strain •Policy makers believed these programs are working •Statistically significant difference at 95% confidence level •So this problem is now managed once a full blown central banking system is put into place

Unintended consequences of National Bank Act

•Innovation in financial instruments - checks

Immigrant labor (late 1940s)

•Irish immigrants increasingly hired in textile mills where there is a shortage of Yankee labor •Before 1845: 95% Yankee labor force (more elastic supply curve) •Less elastic supply curve for immigrant labor

Irish Migration 1840-50s

•Irish women compete and get the jobs • Mills become more labor intensive • Prejudice over manufacturing work for women (only poor and in need do it!) RESULT: "Involuntary" decline in women participation in L market

Federal Reserve System

•Lender of last resort •Federal reserve notes to meet sudden demand for cash in exchange for various forms of bank assets •Federal reserve notes created when Fed bought gold (gold standard) •Federal reserve notes created when Fed buys Treasury bonds in open market •No loans to private individuals or business, except banks •Fed may supervise banks to oversee they comply with reserves

Seasonal nature of panics (think farming) -- Miron

•Money supply contracts when money supply is necessary •Currency demand increasing drives interest rates up •High transaction value at this time year, but low deposits •Currency and credit needs •Timing of defaults matters •Timed just as we have a lack of money available in the money market •Miron looks at these seasonal panics prior to 1914 compared to after 1914

National Bank Act 1862-4

•National bank notes are legal tender •National banks need to comply with minimum capital requirements •National banks need to buy Federal bonds as collateral for banknotes •State bank notes are taxed •Restrictive regulations on new State bank branches •See table next slide

State Banks -- free banking (attempts to reduce financial instability)

•No/Low minimum capital requirements •No/Low minimum reserve requirements

Banking system exposed to exogenous shocks

•Pure gold standard (no central bank) & instability due to exogenous shocks •Federal Reserve System (regulation = central bank)

1860's to early 1870s

•Sparsely populated areas faced monopoly of National banks & high interest rates - minimum capital requirement implied only a few banks could enter these areas •Densely populated areas experienced a dual banking system: National banks and State banks

1870s State banks create checks to substitute notes (and avoid taxes)

•State bank system grows based on the lower standards of the systemallowing for advantage against National bank system

Sherman Antitrust Act

•declared monopolizing behavior illegal, took some time for states to start challenging this trust •Vague - trust and monopoly not defined •Courts not particularly sympathetic at first -standard oil trust was dissolved First federal action against monopolies, it was signed into law by Harrison and was extensively used by Theodore Roosevelt for trust-busting. However, it was initially misused against labor unions

Progressive tax structure

•marginal tax rate increases as income increases •Ex- federal income tax, individuals with higher incomes, average income increasing cuz incremental amount of income is getting higher and higher

Civil War 1875 Act

•passed to set a date for resumption of Gold standard. After 1879 government will buy and sell gold at fixed prices 1873- silver was demonetized (not coined anymore)

Populists economic demands

•using the fed govt for income & wealth redistribution as had been done for railroads, and corporations with subsidies and tariffs 1.get rid of the National Banking System 2. nationalize the railroads 3. prohibit subsidies to corporations 4. restrict land and resource ownership

Moral hazard (ex-post) (asymmetric info)

•A potential borrower wants funding for a given project -once loan is given she/he might decide to invest in a different more riskyproject -how confirm the borrower will do what he promises (and is likely to payback loan) or not (and is not likely to payback loan)? --risky because they have loan (after loan received)

Adverse Selection (ex-ante) (asymmetric info)

•A potential borrower wants funding for a given project -how does the bank know if the project is risky (and likely to not payback loan) or safe (and likely to payback loan)? → Bank charges premium to cover the risk of lending to bad projects (interest rates will be higher than if not risk) → Only risky projects will take loan (adverse selection) (risky before loan)

Panic of 1907

•Blame for panic - San Francisco earthquake and fire, insurance payments, the gold standard and the reaction of the Bank of England •Raising of interest rates attracts gold AWAY from US •So banks reduce loans in favor of England making more loans •Stocks go down •Runs on banks •NY Clearinghouse •Knickerbocker Trust Company •JP Morgan •NY banks reserves •1908 Aldrich-Vreeland Act - Congress creates in 1908 a commission to investigate the monetary system

Reorganization deal proposed by Morgan to each railroad (Morganization!)

•Bondholders exchange debt for equity •Bond holders (now shareholders) and original shareholders raise additional K to cover working K + external K brought by Morgan •Morgan placed his men on board of directors to guarantee bondholders no opportunistic behavior from managers •Morgan was also reorganizing the other two railroads, so as long as he dominated board he guaranteed no more rate wars •Morgan received a commission (4%-10% of value of deal) •Shareholders saw equity rights diluted, but avoided bankruptcy •Morgan got a handsome commission + control + information •He focused on LR and had large market share, so Morgans companies remained above suspicion •Equity rights diluted, but haven't lost of all shares

Morganization strategy

•Collects K to create network of New York City banks, insurance companies and trusts •Scale of K available to support Morganizations

Result

•Competition between State and National banking systems led to weaker regulation and higher bank failure 1880s and 1890s •Coverage did increase substantially •Competition led to lower and converging interest rates between regions

National bank Act

•Competition between State and National systems weakened the banking system •Competition between banks led to regional convergence and general decline in interest rates •Concentrated risks in NYC •Unintended innovation = checks

Evaluation of National Bank Act

•Competition with State system weakened the banking system (higher risk of bank failure) •Competition, however, led to convergence and reduction of interest rates •Concentrated risk in NYC National banks

The National Banking Acts of 1863 and 1864 attempted to make the national banking system seem stronger than the state banking system by all of the following EXCEPT: (pg 386)

A. Imposing legal reserve requirements on national banks **B. Providing depository insurance C. Linking the capital requirements of national banks to the size of the cities in which they were located D. Making national bank notes legal tender

Between the years 1870 and 1920, what happened to the agricultural labor force? (pg 423)

A. It nearly doubled in numbers but declined significantly in its share of the total labor force.

What do diseconomies of cities include?

A. Pollution B. Crime C. Congestion **D. All of the above

Taxes can have different effects on different income groups. Which type of tax takes a larger percentage of income from high-income groups than from low-income groups?

A. Progressive

Field (2003) claims that the period from 1929 to 1941 was the strongest period of what in U.S. history? (pg 486)

A. Technological advancements

In what way did price controls, like those provided by the Lever Food Control Act of 1917 reduce economic efficiency? (pg 449-450)

C. By setting prices below equilibrium, they generated a persistent shortage.

Cities included all of the following economies of scale except

C. Crime

What was the primary reason the Income Tax Amendment of 1913 was passed? (ch 22)

C. To grant the federal government access to revenues beyond those from land sales, customs and excise taxes

Hughes and Cain explain that historically barriers to development in the U.S., such as the dry deserts of some of the country's western states, have been solved by

C. a blend of government and private actions.

The Federal Reserve district banks each had 9 directors evenly representative of (pg 391)

C. bankers, business, commerce and agriculture, and the public

The government significantly raised farm incomes by raising farm prices by: (pg 506)

C. buying crops outright from farmers

Most researchers agree that the New Deal positively impacted (pg 511)

C. electricity production and use of it as power

The system of sharecropping that emerged after the Civil War

C. gave neither the owners of land nor the sharecroppers strong incentives to make improvement in agricultural production.

The objections to the Walsh-Healy Act of 1936, which mandated "prevailing wages" in government employment, (pg 508)

C. held that unemployment would be maintained artificially high. prevailing wage is defined as the hourly wage, usual benefits and overtime, paid to the majority of workers, laborers, and mechanics within a particular area. This is usually the union wage.

The "New Deal" programs of the 1930s aimed at

C. introducing measures to deal with the crises and cure the depression combined with measures to restructure important aspects of the economy and increase the role of government in it.

One factor that made the downturn in 1920-1921 different from the cyclical downturn in 1929-1930 was the difference in price level flexibility. In 1921, prices were ______ flexible in the ________ direction than they were in 1930.

C. more, downward Flexible pricing makes the potential of a more efficient marketplace suddenly realizable. When prices can vary constantly with changes in supply and demand at little cost, buyers can more easily find the price at which they are willing and able to buy.

The main source of conflict between employers and their organized workers is over the (pg 427)

C. proceeds of selling goods and services made jointly between hired labor and business owners.

After the Civil War, in the South, the local provisioning merchant often acted as the chief credit source for poor sharecroppers. The form of asymmetric information problem that occurred as a result of this system is called

C. the hold-up problem

The National Industrial Recovery Act of 1933 (pg 505)

C. was thrown out by the Supreme Court in May 1935

Heckscher-Ohlin Theory

Countries will export those goods that make intensive use of locally abundant factors of production and import goods that make intensive use of locally scarce factors of production. -by using abundant factors, goods prices tend to be equalized, so demand for abundant factors increase, and demdn for less abundant fact decrease -so factor prices converge -so economy b trades N for M -so demand for abundant factor increases which raises price of factor N even though it started out low cuz abundant -factor prices converge

National Bank Act

Created REGIONAL banks It raised money for the Union in the American Civil War by enticing banks to buy federal bonds, and taxed state bonds out of existence. It helped the Union war effort economically.

Unionization

-unions are generally a response to monopolistic labor market -one in which there is one major employer, many laborers, so monopsonist has some buying power in the labor market -goal of unionization is rent seeking- close gap between Wm and Wc -if union can establish enough negotiating power, the goal may be to raise the wages even higher -Demand Enhancement Model: increase the demand for union labor

Brad De Long's assessment: To be a market maker for corporate reorganiztion required:

. Obligation to service debt - respect for boundary conditions 2. Barrier to entry - specialized knowledge (control of diverse resources, political influence) 3. Barrier to entry - reputation for integrity - LR vs SR outcomes (seeking LR profitable outcomes vs. SR profit schemes that have higher risk)

Debt Peonage (inefficient outcome)

1) Reduction of agricultural credit- monopoly allocation distortion 2) over-specialization in cotton- developed national and international markets for cotton inherited from antebellum period induced merchants to prefer payment in cotton Farmers are worse off!

two potential sources of output increases during War

1)Excess capacity- as demand for output increases, idle resources can be used 2)Increase in producitivty- resources become more productive HAPPENED DURING WWI

Why investment banks in US?

1)Regulation prevented development of large national commercial banks ● 2)American banks had to import K rather than simply switch it from commercial to investment businesses ● 3)Rapidly increasing K intensity of industry in US 1880s-1910s ● 4)Monitoring and signaling (processing info = concentration) 1)Processing information creates barrier to entry in market

Labor force participation of women

1810-1832: went form 0 to 10-25% Then, falling into the second half of the 19th century- possibly because women seen as displacing men during periods of high unemployment (not actually displacing them tho)

Table 24.1 (p 479) in Hughes and Cain (2011) shows that real GDP returned to its 1929 level by (enter year) 1936 , while per capita real GDP did not return to its 1929 level until 1939 and nominal GDP did not exceed the 1929 level until 1941 .

1936, 1939, 1941

Ford cont...

Threat of collective action by workers • Detroit experienced violence during 1910s -Studebaker was closed in summer 1913 • Ford was more exposed than any other company because of capital specificity - no other company had assembly lines -ford was more exposed to this threat cuz he had capital intensive assemblhy line- costly to shut down assembly -efficiency theory is overcoming principle agent issue and issue of capital intensity and not having unemployed capital -competitive market wage declined, because higher supply of labor

The elimination of slavery resulted in significant human capital investment by blacks as evidenced by the rapid increase in literacy rates. Economic efficiency gains from this human capital investment were largely offset by racist restrictions on the full employment of this capital

True

Demand Enhancement Model

Union model that seeks to increase the demand for labor

1940's women in the labor market

WWII (socially acceptable) Substitutes to home work production RESULT: Increasing participation of women in L market and increasing wage after 1970s

Wage Contracts

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of: wage contracts freedmen preferred not to work any more at the level they used to when slaves + children and women ceased to work--> substitution between income and leisure caused decrease in output in the south labor allocation--> a rational worker is reallocating their labor to leisure (hrs worked declined)

derived demand

a demand for a commodity, service, etc. which is a consequence of the demand for something else.

Hold-up problem

a situation where two parties may be able to work most efficiently by cooperating but refrain from doing so because of concerns that they may give the other party increased bargaining power, and thereby reduce their own profits. ***tradesmen does work, customer can now refuse to pay, so human K investment needs to be protected

According to Hughes and cain, after the Civil War the freed slaves were

left to fend for themselves without property, money, or skills

Henry Ford Efficiency wage theory

-Henry Ford's Efficiency wage theory -by paying a wage that exceeda the competitive market wage, reduces cost of labor to firm -henry ford paid wage that exceeded competitive wage rate Efficiency wages Opportunity cost for workers employed by Ford • Higher motivation • Lower monitoring costs (?)- they will show up -more workers that would like to work than are demanded with higher wage rate -by paying premium to workers, you are increasing opportunity cost for losing a job -if they lost job they would have to go back to market wage -increases productivity and that they were giving their best effort -more motivated to work

Goals of unionization

-Monopolization in the labor market, from the perspective of the laborer

Goals of labor movement

-More job opportunity -More equal income distribution -More equal wealth distribution -Social reform - abolish debtor's prisons, provide public education, 8 hour work day -Political reform -> National Labor Union à National Labor and Reform Party

Populists (week 11)

-People's party, involved in regulation A party made up of farmers and laborers that wanted direct election of senators and an 8hr working day

What do Populists want?

-Senate members would be elected rather than chosen by state legislatures -Secret ballot - to curtail the corruption of the urban political machine (can't see) -Women's suffrage! -Support for labor from political establishment -Improved public education

Craft or Exclusive Union

-achieves wage increases by restricting supply of membership, puts upward pressure on wages -level of employment in occupation decreases -restricts supply by requiring certain skillsets by it's workers (ex- licensed electrition) -causes wage rate to increase because puts pressure on supply curve

Debt-peonage

-merchants act as monopolist and charges high interest to farmers -farmers who had a bad harvest end up mortgaging next year's harvest

1920's indifference curves

-pivot in budget line is increase of value in labor market work of educated women -now labor is associated with higher human capital through education, so each hour in labor market is more valuable (more consumption) so moves budget line up- more ouput, higher wages -more socially acceptable work moves I-curve out to more utility -relative opportunity cost of house work vs. labor market work has changed -wages don't increase much because of shift because increase in demand is met with increase in supply

Property rights of labor

-property rights & economic efficiency- important for real physical property to be protected by property rights, but hasn't been applied to human capital- people realizing that human capital needs protection, too

Kuznets Curve

A formula showing that inequality increases during the early stages of capitalist development, then declines, and eventually stabilizes at a relatively low level; advanced by the economist Simon Kuznets. graphs the hypothesis that as an economy develops, market forces first increase and then decrease economic inequality

Sharecropping

A system used on southern farms after the Civil War in which farmers worked land owned by someone else in return for a small portion of the crops. planter provides land and K, freedmen provide labor, both shared output

Proportional Tax structure

A tax in which the average tax rate is the same at all income levels. marginal tax rate is constant across incomes

Regressive Tax structure

A tax structure in which those who earn more income pay a lower percentage of income in taxes. As income increases, the tax rate decreases. Sales and excise taxes are considered to be regressive taxes, because those people with lower incomes ultimately pay a larger percentage of their income in sales and excise taxes.

What do taxes do? (pg 442)

A. Impact the incentive to use resources efficiently B. Transfer income from the person or entity paying taxes to other individuals or entities C. Affect the relative prices of goods, services and resources **D. All of the above

Hughes and Cain (2011) point out that the Federal Reserve's restrictive monetary policy in 1931 exacerbated the duration and depth of the depression. However, if a Keynesian "liquidity trap" existed, then increasing the money supply would be unable to decrease interest rates and so could not stimulate which component of aggregate demand?

B. Investment

The Bank Act of 1935 restructured the Federal Reserve System (FRS) in which of the following ways? (pg 507)

A. The FRS Board of Governors gained discretionary control over bank reserves and margin requirements for loans against securities. B. The Governor's Committee was renamed the Federal Open Market Committee which was comprised of 12 members, 7 of whom were governors on the FRS Board. C. The secretary of the U.S. Treasury and Comptroller of Currency were removed from the FRS Board. **D. All of the above

According to Hughes and Cain, which of the following are expected consequences of common ownership of property and resources?

A. The threat of corrupt use B. The danger of over use C. Free riding **D. All of the above

According to Hughes and Cain (2011), what did the Populists want?

A. To use the federal government to redistribute income and wealth B. A more direct democracy that limited the powers of state legislatures C. A secret voting ballot and public education **D. All of the above

Advertising in New York and television production in Hollywood are examples of tertiary employments. The growth of these types of industries depend on the growth of productivity of the primary and secondary sectors.

A. True

Classical economists argue that all workers could have been employed during the Great Depression if they had been willing to accept falling wages. But President Hoover and his supporters recommended that hours be cut before wages which increased unemployment. (pg 480)

A. True

Industrialization through heavy capital investments required savings by households, businesses and/or government bodies.

A. True

Labor unions create a rent when they succeed. This rent forces employers or management to return some of their profits to unionized workers in the form of improved working conditions, health benefits or increased wages. (pg 427)

A. True

One way to characterize technological change is "creative destruction," which basically means that today's innovation will productively destroy yesterday's capital investment. This destruction creates new job opportunities, boosts production and offers a greater variety or more goods and services than in the past.

A. True

Stagflation at the end of the 1970s was marked by increasing inflation and unemployment. (pg 592)

A. True

The Aldrich-Vreeland Act of 1908 provided for temporary emergency currency for national banks. (pg 390)

A. True

The Marshall Plan (1948-51), by requesting coordinated plans of European recovery, gave rise to the European Common Market. (pg 552)

A. True

Which of the following acts was/were designed to reduce the risk of participating in the securities market?

A. Truth in Securities Act of 1933

By 1910 the top ten industries included printing, malt liquors, tobacco cars and railroad cars. The introduction of these new top ten industries indicated

A. a shift in consumer preferences toward luxury items. B. an increase in real incomes in the U.S., permitting people to purchase luxury items. C. a smaller percentage of total consumption expenditures on essential food, clothing and shelter. **D. all of the above.

Chandler (1994) credits IBM's dominance in the world computer market to (pg 607)

A. advancements in technology. B. investments in research and development. C. solid management and sophisticated marketing. D. all of the above.

The increase in tax on state bank notes from 2 to 10 percent provided state banks incentive to (pg 387)

A. attract more demand deposits and increase the use of checks.

The Sherman Antitrust Act of 1890 (pg 375)

A. did not specify what economic actions are legal. B. said that only competitive economic actions were legal. C. declared illegal every combination in restraint of trade. **D. declared none of the above.

During the 1930s, labor legislation was (pg 510)

A. generally favorable to organized labor.

Burns (1934) argued that retardation and decline in some industries are (pg 603)

A. healthy for a growing and developing economy because resources are released for use in productive sectors.

Keynesian economics endorsed the idea of (pg 488)

A. increased government spending as a counterforce against slumps or recessions.

Throughout U.S. history labor and physical capital have been

A. input substitutes and complements

Prior to the establishment of the Federal Reserve System (1913), reserve requirements

A. limited the banks' ability to lend

The Bretton Woods Systems established

A. the International Monetary Fund. B. the International Bank for Reconstruction and Development (the World Bank). C. the International Trade Organization (ITO). **D. all of the above.

Economic developments after the Civil War in the South include all of the following EXCEPT

A. the relatively widespread land ownership among the freed slaves.

An increase in demand for personal computers led to an increased derived demand for specialized micro-processing chips. (pg 605)

A. true

Under the Marshall Plan (1948-51), the U.S. granted resources to and transfused U.S. dollars into European countries devastated by World War II. In return, the U.S. requested coordinated plans of European recovery that promoted efficient and effective production in private markets with minimal government interference. (pg 552)

A. true

World War I (1914-18) caused inflation because (pg 446)

A. war production stressed an economy already operating close to full employment.

The International Monetary Fund, one of the Bretton Woods Institutions, (pg 552)

A. was meant to provide short-term credit.

Monopolist Labor Market

As the product market becomes more competitive, the MRP curve becomes more elastic -competitive product market makes demand for resource more elastic --- flatter slope on demand curve --more competitive the product market becomes, the more inefficiency we have because of bilateral monopoly -as wage is negotatied closer to competitive wage rate, more consumer surplus

Regarding business conditions during the 1930s, which of the following events did not occur?

B. The number of mergers between companies increased in an attempt to increase their consolidated strength.

Which of the following best describes the Employment Act of 1946? (pg 545)

B. An effort to stabilize the U.S. balance of payments as the world moved toward using the U.S. dollar as the main reserve currency

As a result of intensive agricultural innovation, the rise in output of corn and wheat was achieved more by increasing acres farmed than by raising output per acre.

B. False

As more people entered the agricultural sector between 1865 and 1913, agricultural efficiency (i.e., output per man hour) fell.

B. False

Entrepreneurship results in an equal distribution of wealth and income.

B. False

The Federal Reserve Bank Act of 1914 permitted the Fed to compete with banks for profits. (pg 391)

B. False

Two court cases that applied to the regulation of business were Munn v Illinois (1877) and Nebbia v New York (1934). Regarding these two cases, which of the following is true? (pg 372-374)

B. The latter case gave the federal government more comprehensive powers to regulate business. (Nebbia vs. New York) Nebbia- Nebbia v. New York, 291 U.S. 502, was a case in which the Supreme Court of the United States decided that New York State could regulate the price of milk for dairy farmers, dealers, and retailers.

Unemployment insurance would _____ the opportunity cost of unemployment, thereby ______ the frictional (or natural) unemployment rate.

B. decrease, raising

Throughout U.S. History, entrepreneurial activity would occur when

B. distributed rights to profits were clear and protected

Social Security taxes were and are progressive, meaning that the highest proportion is taxed from the highest incomes.

B. false

Efforts to balance the federal government's budget by raising taxes provided a buffer to the economic downturn of the Great Depression. (pg 485)

B. false did not actually work, Hoover tried as a way of balancing his budget as revenues feel and expenditures rose

According to the Quantity Theory of Money, the excessive printing of currency (the issuance of greenbacks and national bank notes) generated the post-Civil War increases in (pg 52)

B. prices

The Western railroads had been granted vast amounts of land by the government. Consequently, they

B. produced a competitive market with homesteading.

Since colonial times, the U.S. government controlled businesses at some level by:

B. regulating, licensing and closing them.

In the period 1965-1980, growth rates in labor productivity (pg 593)

B. slowed across all employment sectors, with some experiencing more severe drops than others.

Increased specialization in the computer industry is evidenced by (pg 609)

B. the growth of the software industry. (software would be a specialization of computers)

From 1870-1914 population grew 293% while GNP grew 600%. This indicates that

B. the increase in GNP relative to population growth meant that the standard of living was increasing on average

Extensive agricultural cultivation from 1870 to 1910, as described by Hughes and Cain (2011), meant that

B. the percentage increase in acreage under cultivation and the percentage increase in agricultural output was roughly the same.

According to Davis (1963), industrial firms need capital to expand, grow and develop. They will seek the most efficient means to finance this capital. In the U.S. during its period of industrialization, industrialists raised the resources needed to invest in capital accumulation by (pg 393)

B. utilizing the lending power of a large number of small banks.

Brad DeLong paper- New York Stock Exchange

Becomes the major stock exchange during late 1840s and 1850s •Erie Canal & western agricultural expansion - major grain trading center in world •Free banking in New York State - rapid expansion of banking system •Railroad securities -only wealthy trade, non-wealthy don't have access to stock exchange What is traded? •Government securities (Federal and State government securities) •Infrastructure (canals, railroads, dock companies, gas companies)

Albro Martin (1971) argues that the Interstate Commerce Commission (1887-1995) was (pg 374)

C. "captured" by the customers of the railroads.

During the worst year of the Great Depression, according to the official statistics, about what percentage of the labor force was unemployed? (pg 479) in 1933

C. 25%

Between 1860 and 1914, the concentration of industrial power did increase. What did members of the general public perceive to be the result of this heavy concentration?

C. A transfer of income away from consumers toward big businesses

During World War I (1914-18), the government did not have to rely on which one of the following reallocation devices? (pg 445)

D. Rationing

Unions add costs to labor. Who ultimately absorbs the costs?

D. The consumer

Hughes and Cain (2011) talk about falling levels of investment during the Great Depression. What does the "investment" that they are talking about refer to?

D. Tools, equipment, machines, and buildings used in production

Taxes (week 11 part 2)

Income Tax of 1913- Sixteenth Amendment •Generate revenue: eg. Excise tax •Taxes were meant to collect more revenue as excise tax declined •Change the relative price of a good: eg. Excise tax, Investment or Consumption tax •Tax incidence •Form of tax system

Fill in each blank with one of the following terms: Monetarist, Keynesian, Austrian, International The Monetarist view of the causes of the Great Depression emphasizes the decline in the money supply which caused aggregate demand for goods and services to shrink, leading businesses to cut production and employment, while the Keynesian view of the causes of the Great Depression emphasizes that there is little evidence that the economy was suffering from any real shortage of money; the problems, instead, stemmed from a fall of private consumption and investment spending, and the International view of the causes of the Great Depression emphasizes factors largely external to the domestic economy, particularly the Gold Standard.

Monetarist, Keynesian, International

Did JP Morgan add value?

Problem: •Selecting by high returns - adverse selection •Once she invests it is difficult to know what managers do - moral hazard Investment banking: •Provides signaling and monitoring to investors - JP Morgan in the board is guarantee! Test: If true, JP Morgan controlled firms should have higher stock value (relative to book value) than other firms of similar size and industry Brad De Long's answer: Yes, JP Morgan's firms had about 30% higher stock value

Industrial Labor market

Rising wages and declining hours •Capital deepening and higher labor productivity (increasing capital to labor ration, so increasing labor productivity) • •Efficiency wages to lower monitoring costs (henry ford) • •Labor market power- negotiate for higher wages • •Increasing participation of women and more highly skilled workers • •Declining number of days of work/week (6 to 5) - big gain during Great Depression

Market for stocks

Supply of stock shifts rights due to crop season

Inclusive or Industrial Union Model

accomplishes wage increase by including all members in labor group (occupation) in the union, so that the union can negotiate on behalf of all labor sin that occupation, that then provides monopoly powe4r repsnse to monopsonist -bilateral monopoly power, onopsonist ahs power and union -negotiates a wage that exceed competitive wage, could withhold labor through a strike, decreases level of employment

The Command Economy

an economy in which production, investment, prices, and incomes are determined centrally by a government.

Aldrich-Vreeland Act of 1908

authorized national banks to issue emergency currency backed by various kinds of collateral commission to investigate the monetary system

A cyclical downturn in 1958 would likely have been more serious had there not been a deficit federal budget. This is evidence of the role of automatic stabilizers in promoting economic stability.

automatic stabilizers

Gold Standard

automatically corrects disueqilibrium

Endogenous incentives to process information

investment banking/mergers (but are these the best ways to regulate?)

Tertiary Employment

involve providing a service e.g. teaching and nursing- quality of life enhancing activities, characteristic of advanced economies growth depends on productivity of the primary and secondary sectors

1920's Labor market

change in type of labor women are participating in -only poor women participating in manufacturing College education expansion Demand for sales & clerical work (socially acceptable) RESULT: Increasing women participation in L market (particularly married white), but wages do not increase substantially as shift in demand is compensated by shift in supply

Fill in the two blanks with the following terms: collusive, competitive The National Industrial Recovery Act prevented firms from undertaking competitive pricing behavior while contradictorily forbidding collusive strategic behavior. (pg 505)

competitive, collusive

Fill in the blanks with one of the following terms: increase, reduce, expansion, contraction Small banks held their reserves in large city banks. As a result, when small banks had to withdraw reserves because of depositor anxiety, large banks had to call in loans. This began the process of monetary contraction , which ultimately can reduce GNP, as happened in the Panic of 1907. (pg 389)

contraction, reduce

Financial System

delicate processor of information, exposed to problems •Adverse selection •Moral hazard •Financial instability may be transmitted throughout the economy

Market for call-loans

demand for money during crop season by farmers -shifts D curve right

Sharecropping

is a type of farming in which families rent small plots of land from a landowner in return for a portion of their crop, to be given to the landowner at the end of each year.

Direct regulation

ex- Draft or Conscription *Forcing SUPPLY •Forced participation in the labor market, forcing supply to be above what it would be in equilibrium •Consumer is buying labor and that is the government in this case (hiering soldiers) •Producer=laborer, soldiers •Example: Welfare analysis of forced supply

Wage contract (week 8)

freedmen provide labor for fixed wage--in South's economy

Rent contract

freedmen rent land for fixed lump sum

Fill in the blank below. One difficulty with the bi-metallic system is that, when the ratio of exchange is fixed, the process of arbitrage will force one of the metals out of circulation. In the case of the Sherman Silver Purchase Act of 1890, the Treasury's gold reserves became perilously low. (pg 397)

gold

Table 27.1 on page 546 shows a decline in real (chained 2000 dollars) GDP in 1946 from the previous year. Considering the components of spending in GDP, this decline was a result of a decrease in which type of spending?

government

Price controls

government-imposed limits on the prices that producers may charge in the market •Outcome if the price floor is binding- min price set by gov is above equilibrium price •Give us Qs>Qd- persistent surplus that results from price floor (some deadweight loss)-- relevatn •Outcome if the price floor is non-binding- falls below equilirum price,-- not relevant

Movement of labor from a Foreign country to the domestic (Home) economy

increases the marginal product of labor in Foreign.

The economic analysis of international trade says that specialization and free trade

increases welfare for a country as a whole, but can also create losers as well as winners by shifting the distribution of income within the country

Industrial Labor Market-- Indifference Curves

institutional format of our labor force and economy matter in terms of how much women participate in labor force -Indifference curves time spent doing housework vs. time spent doing labor market work -both of these things raise level of income, so you can consume more--> increases utility (higher indifference curve) -budget line is 24 hour day -looking for highest indifference curve tangent to budget line

Mechanic lien laws

introduced early, gives tradesmen help for this hold-up problem, restricts use of property until human capital has been paid

Fill in the blanks with one of the terms: cyclical, frictional, seasonal, structural The over-employment during WWII fell resulting in higher unemployment rates in the early 1950s despite the fact that the economy was in an expansion phase of the business cycle. These higher rates, at the time, were thought to be driven by structural unemployment because they were about double the unemployment rate of the 1920s. However, it is more likely that the low unemployment rates of the 1920s were extraordinary and the 1950 unemployment rate reflected the common frictional unemployment associated with labor in a market economy operating efficiently finding best matches between skills and jobs.

structural, frictional

Macro problem (financial instability and gold standard)

sudden stops on investment

tax incidence

the actual division of the burden of a tax between buyers and sellers in a market -a tax when demand is price ELASTIC, most of the tax is paid by producer---cuz consumer wouldn't want to pay extra -a tax when the demand is price INELASTIC, most of the tax is paid by the consumer

Arbitrage

the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.

Fill in the blank below. The use of standard financial market instruments (commercial paper, stocks, bonds) in banks' loan portfolios rather than loans to individuals backed by personal securities reduced transaction costs for the banks and the borrowers. (pg 394)

transaction

hold-up problem

two parties may be able to work most efficiently by cooperating but refrain from doing so because of concerns that they may give the other party increased bargaining power and thus reduce their own profits.

Some economists argue that conventional analysis of international trade policy underestimates the disruption to communities in the U.S. caused by rapid shifts in international trade. The reasons put forth to justify why impacts sometimes fall more heavily on certain communities include:

uneven growth across industries in exports by foreign countries, the high geographic concentration of certain U.S. manufacturing industries, and the unwillingness of U.S. workers to relocate away from depressed regions.

Use the following data to calculate the inflation rate for the years 1914 - 1922: (round to two decimal places)

using table 22.3, for the year 1915 make the following calculation [(CPI1915 - CPI1914)/CPI1914] x 100 Make similar calculations for each year and use table 22.6 to check your calculations

1830-40s textile mills

• Demand for female work • Native women (before getting married) initially took the work