MGT Final Exam

Which of the following is not an example of the "tragedy of the commons"?

A CEO who destroys his company's machines by running them too long

White (1990) studies the reasons for stock growth and collapse during the late 1920s. What does he argue was the cause of the rapid collapse of the market in October 1929?

A business cycle downturn had begun just prior to the collapse

What is a Repurchase Agreement?

A company sells an asset to a buyer and agrees to buy it back after a short period of time for a higher price

Why would you not want to produce with a reaper if you had a small farm?

A farmer would not be able to produce enough to sufficiently pay down the high fixed costs of buying a reaper

In his Report on a National Bank, Hamilton made several claims in support of establishing a Bank. Which of the following is not among the principal advantages he highlights?

A national bank would establish more commercial banks and avoid political favoritism

Which is the most likely example of a design patent?

A patent on the shape of the new VolksWagen Beetle car design

Inventive activity (i.e., the creation of new inventions) is nearly always driven by what:

A profit-seeking motive

Acemoglu, Johnson and Robinson (2001) and Engerman and Sokoloff (2002) agree that the North American colonies were likely to establish good institutions relative to other British colonies, but their reasons differ. Which of the following explains the reason for their positions?

Acemoglu, Johnson, and Robinson argue that European settlers were better able to survive the American conditions, whereas Engerman and Sokoloff argue that the American colonies had more equality because they did not have indigenous labor or ability to produce cash crops on plantations

What is money?

Anything that is generally accepted for payments

Which of the characteristics is not a key property of money in all places and periods?

Backed by gold/silver

Which of the following would decrease the deposit multiplier?

Banks holding more money as reserves

The discount window at the Federal Reserve provides a place for _______?

Banks to borrow from the Fed if they need short-term liquidity

How do commercial banks multiply the amount of currency in an economy to become M1?

Banks use deposits to provide loans which in turn puts money back out into circulation to create more deposits which are part of M1

What is a Mortgage Back Securities (MBS)?

Bonds created from a large pool of individual mortgage loans

Stock prices nearly tripled during the late 1920s. Many of the stocks were bought on margin. What does buying stock on margin involve?

Borrowing money to purchase stock

We argued that American technology was not necessarily superior to the British, and that the British were unlikely to switch to American technology and the Americans were unlikely to switch to British technology. Why was this the case?

British technology was labor-heavy because British wages were relatively low, and American technology was capital-heavy because the U.S. rental rate of capital was relatively low

Which of the following was not a way that GM competed with Ford for business?

Built a single factory that produced all the company's car brands at once

Granitz and Klein (1996) examine how Standard Oil was able to succeed in easily buying out the other refiners in Cleveland and preventing new refiners from entering. They argue this was achieved by what?

By making deals with railroads to receive rebates for any oil shipped by their competitors

Which of the following best describes the reason for the high failure rate of free banks relative to other banks?

Collapse of state bond prices

As time went on, land size for homesteading was steadily increased. Why might this have been necessary in order to encourage settlement in the west?

Farmers needed more because western lands had less water, a harsher climate, and rockier soil

Olmstead and Rhode (2002) find that northern agriculture productivity was relatively constant between 1860 and 1940. Calling it a "Red Queen Model", what do they argue?

Farmers were heavily investing in new technology to fight diseases/pests and allow planting in inhospitable climates, but it was all they could do to keep ahead of the frontier issues

Which of the following inputs became the most important for agricultural output during the 1900s?

Fertilizer

Which of the following was not a key emphasis of the "American System"?

Focus on highly skilled labor

What is the reasoning for why modern governments focus on production and no longer consider mercantilism to be important?

Free trade makes economies better off

Why is more growth not always better?

Growth can sometimes lead to externalities that hurt individuals that were not party to the growth

The Agricultural Adjustment Act of 1933 kept crop prices high by _____?

Having the government buy excess crops and pay some farmers not to grow them

Even though he significantly increased government spending during the Great Depression, Herbert Hoover has a bad reputation next to FDR primarily because _______?

He did not establish federal work relief (i.e., government paying people to work)

William Gibbs McAdoo thought Civil War bonds missed their chance to be marketed more broadly. So when he needed to sell a large number of WWI bonds, what did he do?

He sold bonds to the common man (as well as the rich) by capitalizing on patriotism

_______ is the idea that it is hard to have transactions without money because each party has to demand what the other has?

Double coincidence of wants

How is economic development different from economic growth?

Economic growth measures total output growth while economic development measures the growth of peoples' well-being

What is the difference between specialization and economies of scale?

Economies of scale measures the amount that you physically produce and specialization discusses the range of different products you produce

Which of the following canals was so successful that it spawned a wave of canal building?

Erie Canal

In the absence of federal banking regulation, the Suffolk Banking System was a private entity that stepped in to facilitate the use of bank notes. How did they achieve this?

Established relationships among banks and forced them to redeem each other's notes at par

Why was cotton not among the crops initially grown in the American colonies?

Existing cotton seeds did not grow particularly well in the Americas, growing low to ground with seeds that were hard to clean

Tallman and Moen (1990) provide narrative evidence of the Panic of 1907. They argue that what event led to the immediate breakout of the crisis in New York City?

Failed corner on United Copper Company stock by F. Augustus Heinze

The loosening of U.S. land policy quickly pushed the agricultural frontier west. What was the main constraint on the speed of the western movement?

Land had to be cleared and it took families a lot of time and effort to do so

_____is the economic term that people get more efficient doing something the more they do it?

Learning by doing

The New York Safety Fund was intended to do what?

Limit losses to depositors and noteholders

The failure of the New York Safety Fund is often blamed on a principle-agent problem. Why did the Safety Fund fail from this issue while the Suffolk System was able to avoid it and survive?

Losses in the Suffolk System were concentrated in a single bank which prompted them to supervise other bank's actions, whereas losses in the Safety Fund were dispersed amongst all banks which did not prompt them to supervise

Why was the transportation revolution vital for the growth of modern manufacturing?

Machines are only useful if firms can sell a lot (i.e., have a big market)

One of the main ways that manufacturers (including Ford Motor Co.) were increasing the speed of their production after 1900 was to redesign their factories by _____?

Making them based on the order of the steps of production rather than on the power source

U.S. Neutrality during the Napoleonic War led to a large increase in U.S. exports. Nearly all of the increase was due to what?

Many countries sent goods to the U.S. in order to be reexported to the warring countries

Heckelman and Dougherty (2007) argue that personal characteristics affected politicians' votes on the U.S. Constitution. They find that merchants were more likely to vote for a National system. As discussed in class, what is the most likely cause of this vote:

Merchants wanted a more stable government and currency to encourage trade

The two likely causes of the depth of the Great Depression are _____ which highlights the decline of the money supply due to money held outside the banking system and ______ which highlights how hard it was for firms to receive loans because bank failures destroyed borrowing relationships.

Monetary Effects; Non-Monetary Effects

The Quantity Theory of Money would argue that which of the following is generally responsible for increases in prices (i.e., inflation)?

Money going up

How is total profit calculated?

Total revenue minus total costs

Which one of the following is true in the Von Thünen's Featureless Plain Model before a railroad, canal, or road is built?

On a featureless plain, only those farmers that live within a certain distance from the city center will engage in commercial agriculture whereas the rest of farmers will produce only for their own family's consumption (i.e., subsistence farming)

Why might people want a Bimetallic Standard (as opposed to a fiat currency)?

Prevents a government from manipulating its currency

Railroads were often accused of charging different prices to different people. This practice is specifically called ______.

Price discrimination

What is the key difference between markets with perfect competition and those with imperfect competition?

Products in perfect competition cannot be differentiated from each other (i.e., virtually identical products), whereas those in imperfect competition can be differentiated (i.e., different brand names or quality)

Which of the following banking issues did the Federal Reserve Act not solve at all?

State banks and their low regulations

Which of the following would not be directly counted towards an accurate and full calculation of U.S. GDP?

Steel sold in the U.S. to eventually be used in the construction of houses

In addition to not having gold/silver mines, what is the main reason the American colonies had relatively little hard currency (i.e., gold and silver coins) in circulation?

The colonies operated a large trade deficit with other countries

A entire production possibilities curve (and not just a point along the curve illustrates what?

The combinations of products a country can produce using all of its resources

To encourage greater productivity, some manufacturing firms implemented _______ whereby workers received a much higher wage rate if their output met or exceeded the daily standard.

The differential piece-rate method

Scholars often split the New Deal into two parts. What was the difference between the two?

The early period legislation was seeking to deal with Great Depression itself whereas the later period legislation was focused on establishing safety nets and improving standards of living for working class people

Why did the First Banking Crisis of the Great Depression begin in October of 1930?

The failure of Caldwell and Company led to closures at connected banks

Why did nearly all slaves in the U.S. work on cotton farms?

The high price of cotton compensated plantation owners to bid away slaves from other crops

Why did people use bank notes in a large number of transactions before the Civil War?

There was relatively little gold and silver coins available in circulation

Where do the financial innovation emerge in the Great Recession?

mortgage markets

What was the main reason that the Fulton steam engine was so revolutionary to river travel?

Allowed travel upstream without prohibitive costs

After the Panic of 1907, Congress' immediate but temporary solution for the nation's inelastic currency was_________?

Allowing banks to monetize their assets (i.e., print bank notes) during panics under the Aldrich Vreeland Act

The Manufacturing Belt is what?

An area of the country (i.e., mostly in the Midwest) where nearly all of the nation's manufacturing goods were produced for over a century

Which of the following best describes the U.S. Constitution?

Compromise between National and Federal Systems

The Great Depression consisted of two distinct economic downturns. The second downturn during 1937-38 was driven by _____?

Congress reducing expenditures and the Fed raising reserve requirements thinking the crisis was over

While most economists focus on the number of patents, Moser (2005) examined whether patents affect the types of innovation that occur within a country. What does she find?

Countries without patent protection focused on inventions that were not easily copied

What was the main purpose of the Patent Cooperation Treaty of 1970?

Create a unified procedure for filing patents in more than one country

The concept of ________ argued that many farmers were trapped into debt because they had to take out high interest rate loans from dishonest lenders and often could not repay.

Debt peonage

Assuming the price of steel is lower in the rest of the world than in the U.S. and U.S. freely trades with other counties, which of the following would happen to consumer and producer surplus of steel in the U.S. if President Trump imposes a tariff on steel imports from all others countries?

Decreased consumer surplus, increased producer surplus

Charles Goodyear discovered the technique to vulcanize rubber, but was not able to earn a high profit-level from his invention because _______?

He spent a lot of time and money trying to defend his patent both domestically and internationally but had relatively limited success at doing so

What was Jefferson's view on the early land debate?

He wanted land to be sold very cheaply in order to encourage democracy

In his first year, FDR restricted gold exports, banned the private holding of gold, and raised the price of gold in the U.S. What was he seeking to do?

He wanted to prevent the money supply and prices from falling further

Ford's strategy on having the lowest priced car was successful in the market, but what was his strategy's distinct problem?

His focus on the assembly line and economies of scale prevented him from innovating on the car itself or quickly implementing new technology

How did Jay Gould spur the massive railroad consolidation movement after the Civil War?

His wild actions proved to Vanderbilt and others that collusion was not possible in the long run because people were always going to undercut prices and try to take over the system

The formation of a trust (such as those in the oil industry) is an attempt to do what?

Incentivize competing companies to collude and act like a monopoly by sharing profits

Allen (1991) argues which of the following:

Homesteading allowed the U.S. government to avoid high costs associated with land maintenance

After the Revolutionary War, the British started to dump goods at very low prices on U.S. market. Why would this make sense?

Hope to prevent any U.S. manufacturers from developing

What are bank notes actually?

IOUs of individual banks

According to the Von Thünen's Featureless Plain Model, what do we expect to occur to commercial agriculture when a railroad is built out from the city center in one direction?

In addition to the initial circle of commercial agriculture, commercial agriculture would occur in a cone-like shape starting at the city center and getting smaller on each side of the railroad as the distance along the railroad increased

How does the arrival or improvement of transportation affect competition in general?

Increases competition because multiple firms can serve the same market despite being located other places

While companies can secretly collude, set a high price, and earn high profits, most collusion does not last for very long. Why is this the case?

Individual firms have a large incentive to undercut the high collusive price and capture the entire market regardless of the deal they made

Banks help solve the denomination mediation problem. What describes this problem:

Individuals provide small amounts of deposits, but loans often need to be very large

The Sherman Antitrust Act of 1890 was the first law that allowed for the breaking up of companies that had monopoly power and for the punishment trusts that were colluding. However, it did not initially see much success because _____?

It did not lay out clear legal definitions for the concepts of "trust" and "monopoly"

Which of the following was a drawback of government land grants to fund railroads?

It did not prevent railroads from building wherever they wanted just to obtain extra land

During most of the Great Depression, the Fed took a passive role and even discouraged banks from borrowing at the discount window because ______?

It failed to appreciate the magnitude of the panic and looked at the wrong indicators

Water power is fairly efficient and while it did not produce much power, its main drawback was what?

It is seasonal and could only be used in some locations

What is the drawback of buying stock on margin?

It magnifies the losses of downturns in stock prices

The U.S. did not allow banks to branch (i.e., operate in more than one location) before the 1980s. Why did the lack of branching lead to more historical bank failures and financial panics?

It prevented banks from diversifying their loans across different areas

How did the Panic of 1907 end?

J.P. Morgan deposited his and other wealthy individuals' money in trust companies and arranged to float bonds on European markets as needed

In which of the following ways did the Navigation Acts help Britain?

Kept shipping costs in the Empire and prevent other countries from undercutting

According to our growth accounting model, which of the following inputs contributed the largest share to U.S. GDP growth from 1840-1870?

Labor

There are many possible effects that could be responsible for the recovery from the Great Depression. Romer (1990) calculates what output would have been like (1) without fiscal policy or (2) without monetary policy to determine what factor was most important. She finds that _______?

Nearly all the recovery was due to the expansion of money supply due to gold inflows

Patenting is important for economic growth, but is subject to a "balancing act". As such, countries typically limit a patent to a fixed amount of time. Why is this the case?

Patents allow inventors to receive a return, but we need to make sure protection does not discourage future inventions

White (1990) studies the reasons for stock growth and collapse during the late 1920s. What does he argue was the cause of the rapid growth?

People (particularly new investors) irrationally over-estimated the market during the 1920s

According to Gresham's Law, bad money drives out good. How did this work in the early 1800s?

People exported the coin whose metal was undervalued at the mint and imported the metal that was overvalued

While the first railroad was built in 1820, railroads did not overtake canals until the 1860s. Which of the following is not a reason for this slow replacement?

People preferred canals because they offered year round service compared to partial-year service by railroads

Which of the following types of competition is likely to lead to the lowest price and highest quantity produced in the market?

Perfect competition

Which of the following outcomes are not directly associated with the mercantilism approach?

Push for increased international trade without tariffs

After Jackson vetoed the Second Bank of the United States, what did he do with all the government's money?

Put the money in ordinary commercial banks around the country

What Act most likely provided the necessary number of people to allow the American Revolution to take place?

Quebec Act

What industry was the first to develop modern business management structures and why?

Railroads because they needed modern management techniques to operate in a variety of locations and provide a variety of services

Railroads reduced travel time compared to canals. While the higher speed of trains compared to boats is one factor, which drove this travel time reduction in a targeted and endogeneous way?

Railroads could be built straight to specific large cities whereas canals took roundabout routes based on where rivers were located

In Railroads and American Economic Growth, Fogel finds that railroads had a relatively small positive effect on the economy (i.e., under 5% of GDP). Which of the following is among his evidence for this small figure?

Railroads were more expensive to use than canals and rivers

Why were the National Banking Acts of 1863 and 1864 actually passed?

Raise money for the Civil War by creating a demand for government bonds

______ is defined as the difference at birth between the discounted lifetime earnings of a free laborer and the discounted lifetime slave net income?

Rate of exploitation

How did the U.S. government solve the specific land policy issue of "graduation"? a) Giving away land to all high school graduates

Selling off unsold land for very cheap

As opposed to the Glass-Steagall Act of 1935 which centralized power in the Federal Reserve, the Glass-Steagall Act of 1933 _____?

Separated depository banks from investment banks and installed deposit insurance

Which of the following does not describe free banking laws?

Set absolutely no requirements on everyday bank operations

The industry life cycle describes the birth, rise, and decline of industries over time. During which of the steps is the number of competitors declining (i.e., consolidation) and a separation of the market into segments based on price or quality?

Shakeout

Why did Gallatin argue that the federal government was needed rather than local companies or state governments?

Some of the most important works would become productive only when all connecting improvements were complete and individual companies/states would not be able to do them all

While the pound sterling was Britain's official currency, the U.S. chose to adopt a currency system more similar to what country?

Spain

What was the result of the financial innovations?

Spread housing market risk across the entire financial network

Before the arrival of Ford's Model T in 1908, the automobile industry could best be described as being in what step of the industry life cycle?

Startup

When the attempt by plantation owners after the Civil War to hire former slaves and work them the same long hours failed, they established the Tenant System by ______?

Subdividing their land and renting the pieces to other farmers

The ______ was designed to raise revenue and achieve mercantilist goals, while the ______ was simply intended to raise revenue.

Sugar Act; Stamp Act

Immediately upon taking office in 1933, FDR ordered a Bank Holiday in order to shore up confidence in the banking system by ______?

Supposedly allowing time for banks to be inspected and unsound banks to be closed

The Beard Hacker Thesis argues two things. The first and often disputed argument is that production for the Civil War allowed Northern manufacturing to suddenly develop. What is the second and more lasting argument?

The Civil War allowed the North to accelerate growth by passing legislation that unified markets and propelled industrialization (e.g., Homestead Act, Land-Grant College Act, and Transcontinental Railroad Acts) when the South could not object

What was the turning point of Britain's hands-off policy towards the colonies?

The End of the French and Indian War in 1763

Which of the following is a given reason that extensive U.S. growth has slowed after 1840?

The U.S. has focused on more capital deepening and less capital broadening

In his Report on Manufactures, Hamilton argued that the government needed to support manufacturing. Which of the following was not one of the main reasons that Hamilton gave?

The U.S. needed a positive trade balance in order for it succeed relative to others

Allen (1991) argues that little homesteading was done in Utah because _______.

The Utah population reached out to help the Indian communities rather than to fight them

Examining the location of patenting activity, Perlman (2016) argues that the size of a market increases the number of patents. She makes this claim based on seeing what pattern?

The arrival of transportation improvements to an area (particularly railroads) greatly increased the number of patents produced

Fogel and Engerman's Time on the Cross examines the data behind slavery and finds which of the following?

The material conditions of life (i.e., height and diet) for slaves were similar to that of low income free whites

Between 1850 and 1858, there was a sudden increase in reaper sales. What was the main reason for the rise in reapers during the decade?

The price of wheat in the U.S. rose dramatically due to the Crimean War in Europe thus increasing the number of acres that most farmers wanted to plant

Following the construction of a high speed train system that substantially reduces transportation costs within the U.S., what would we expect to occur to prices paid by U.S. consumers and prices received by U.S. producers after shipping costs if the U.S. does not engage in international trade?

The price paid by the consumer falls and the price ultimately received after shipping costs by the producer rises

Why did the pyramiding of reserves lead to banking panics?

The pyramid linked banks together and helped to transmit shocks

During the 1920s, the American high school structure became finalized and graduating high school became standard rite of passage. Why was this push so successful?

The rate of return to high school was large with new manufacturing industries

While free banking ideas were growing for some time, Bodenhorn (2006) argued what event solidified political support and led to the passage of a Free Banking Act in New York?

The rise of Anti-Mason groups after disappearance of William Morgan

Which of the following was a main reason that both Jefferson and Hamilton wanted a rectangular land registration system (i.e., the Northeastern Township Approach)?

The system's precise boundaries prevented land disputes

Which of the following items is in M2 but not in M1?

Time deposits

The stock market crashes in October of 1929 often date the start of the Great Depression. However, because ______, the crashes were probably more psychologically damaging than anything.

There were no bank or firm failures for almost a year after the crash

Why did the Italian city-states dominate the early spice trade?

They could travel on the Mediterranean Sea for a lot of the trip

Why did the American colonies not fit the typical mercantilist model?

They did not have good resources (i.e., gold/silver, spices, people)

Even though they often believed that it was morally wrong to own slaves, why did so few Northerners initially try to get rid of slavery?

They greatly benefited from the cheap southern crops

Assuming the price of tires is higher in the rest of the world than in the U.S. and there are no tariffs, what would happen to tires prices in the U.S., the quantity of tires sold to consumers in the U.S., and the quantity of tires produced in the U.S. if the U.S. opened up to trade for the first time (i.e., the change from autarky)?

U.S. prices would increase, domestic consumption would decrease, and domestic production would increase

The Gallatin Plan of 1808 called for the government to do what?

Undertake a system of land and water transportation improvements

What is the difference between vertical integration and horizontal integration?

Vertical integration is when companies own their supply chain, and horizontal integration is when companies begin to produce related goods/services

Standard Oil fortified their management by shifting from a trust structure to a holding company structure. What was the reason for this switch?

Wanted to create a single unified chain of command with punishment for managers for deviations from the agreed upon strategy

Heckelman and Dougherty (2007) argue that personal characteristics affected politicians' votes on the U.S. Constitution. Which of the following do they find to be a significant predictor of an anti-National position?

Western landowners

The Bank War was waged over the renewal of the Second Bank of United States' charter. Hammond (1947) tries to correct the impression given by previous authors by concluding that:

While Biddle was not very discreet, the bank was successful in supervising the banking system and preventing risk-taking

The Infant Industry Argument states which of the following?

Young firms are initially inefficient and thus temporary tariffs are sometimes necessary to protect them until they become efficient

When trying to calculate the total benefits of the railroad to the nation, we have to account for two types of externalities. Specifically, _______ consists of benefits to producers of products that railroads purchased in order to operate, whereas ______ consists of benefits to all producers because of the railroad's ability to allow larger markets to develop and goods to arrive faster.

backwards linkages; forward linkages

A patent is an:

exclusive right granted for a product or a process that provides a new way of doing something, or offers a new technical solution to a problem