FINAL PREP - 3050 FDN of BUS

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

General Motors as a company is best described as a __________?

A Holding Company

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

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 pay down the high fixed costs of buying a reaper

_______ describes a bank that is willing to lend to illiquid but solvent banks during a crisis?

A lender of last resort

In his Report on a National Bank, Hamilton made several claims in support of establishing a National 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

Economies of scale is a strategy to lower _______?

Average total costs

What is the "originate to distribute" model?

Banks receive fees for issuing loans and then sell the loan to others regardless of risk

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

Banks use deposits to provide loans which put money back out into circulation to create more deposits

What is one of the reasons the demand curve almost always slopes downward?

Because consumers can buy more within their budget when prices are low

Why did we argue that American technology was not necessarily superior to the British technology?

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 General Motors competed with Ford for business?

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

How might the Federal Reserve have helped a housing bubble to emerge prior to the Great Recession?

By keeping interest rates very low

Why did Britain initially allow the American colonies so much freedom and encourage development beyond the initial coastal locations?

Challenge the nearby Spanish and French colonies

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

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

Focus on highly skilled labor

How are GDP and GDP per capita different?

GDP per capita is GDP divided by the number of people in the country

Why is more growth not always better?

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

Ford's strategy was successful in the market, but what was the strategy's distinct problem?

He did not innovate much on the car itself or quickly implement new technology

What was the reasoning behind the actions of the Fed and Congress during the Great Recession?

Did not want to make the same mistakes of the Great Depression and wanted to stop bank runs

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.

Differential piece-rate method

Which of the following are almost always going to be short-term?

Discount Bonds

Which of the following would decrease the deposit multiplier?

Discount Bonds

_______ 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

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

What did the Northwest Land Ordinances of 1785 do?

Established surveyors to set baselines and principle meridians

Who is generally hurt by protective tariffs and who is generally helped?

Exporters and consumers are hurt by tariffs and protected industries are helped

What event led to the immediate breakout of the Panic of 1907?

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

What would we expect to happen to velocity (as defined in the Quantity Theory of Money equation) if money starts being used much more easily due to digital currencies such as Bitcoin?

Increase

According to our growth accounting model, which of inputs has contributed the least to U.S. GDP growth?

Land

Which of the following acts switched the U.S. from a "first to invent" system to a "first to file system"?

Leahy-Smith America Invents Act

People who argue for the Infant Industry Argument of international trade believe that they need to protect firms because_____?

Leaning by doing will help them compete

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

Learning by doing

The New York Safety Fund was intended to do what?

Limit losses to depositors and noteholders

Bank Note Reporters and Counterfeit Detectors increased bank note efficiency and helped them circulate around the country by _______?

Listing discounts of bank notes from face value based on the probability of default and cost of redemption

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, whereas losses in the Safety Fund were dispersed amongst banks which did not prompt them to supervise

What would we expect to happen to M1 and M2 if depositors move their funds from demand to time deposits?

M1 would go down and M2 would stay the same

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 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

What strategy did General Motors undertake in order to compete with Ford?

Market segment approach

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 strong central government 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 U.S. manufacturing system started very slow. Which of the following was the first major step to establishing U.S. manufacturers that could compete with European ones?

Migration of smart people who had "studied" European technology

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

Money going down

What would we expect to happen to the U.S. production possibilities curve given that the U.S. has lost a large amount of labor due to Covid?

Move towards the axis in both directions

Which of the following Supreme Court cases ruled that any firm "clothed in the public interest" was subject to government regulation?

Munn v. Illinois

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

The "shop-order system" was installed in order to ________.

Track the specific costs associated with each step of making each product

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 tire 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

Why would an investment bank or hedge fund primarily use repurchase agreements (i.e., repos)?

Obtain liquidity but hold onto the assets

Why did the South Improvement Company try to use oil refiners as "eveners"?

Oil refiners could allocate the quantity of oil to help maintain collusion among railroads

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)

The Fed was created to provide an elastic currency. Some of this was issuing funds through the discount window, but the Fed's main way to expand or contract currency is through _____?

Open market operations that buy or sell Treasury bonds

If the GDP of the American colonies grew nearly 10-fold over the 1700s, but GDP per capita growth was less than 35%, then what must have been occurring?

Population growth was strong over the period due to high fertility and immigration

Which of the following is not a type of patent?

Practical

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

State banks and their low regulations

Hornbeck (2010) argues that protection of private property is vital for individuals to invest and improve that land by showing _______?

how farmers increased investment after the invention of barbed wire

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

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

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 the Great Depression itself whereas the later period legislation was focused on safety nets and improving standards of living for working class people

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

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

What is the problem of graduation?

The government having to deal with unsold land in developed areas

What is a credit default swap?

An insurance contract on bonds

The pyramiding of reserves describes _______?

A system where banks were allowed to keep reserves in other banks in larger cities

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 best explains the reasons 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 would we expect to happen to the adoption of mechanized technology in the U.S. if the minimum wage was raised in all states?

Adoption would increase

Most tech companies are located near Silicon Valley, most Hedge Funds are located near New York City, and most car companies are located near Detroit because firms are often more efficient when they operate around other similar firms. This concept is labeled what?

Agglomeration economies

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

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

Allows a government to increase its currency to help the economy during panics

American technology developed much differently from Great Britain because_____?

America had fewer people relative to land than Great Britain and thus had to economize on labor

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 the Reconstruction Finance Corporation was intended to help prop up industry and banks by providing loans, it is often regarded as semi-responsible for the Third Banking Panic of the Great Depression because ____________?

Congress released the names of all the banks it lent to

The 1920s are characterized by much broader segment of population having access to high standard of living. Which of the following did not fuel this particular growth of the middle class?

Continued government spending after WWI

How did J.P. Morgan take action to help end the Panic of 1907?

Deposited his and other wealthy individuals' money in struggling companies and arranged to float bonds on European markets as needed

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

How did Fannie Mae and Freddie Mac encourage the housing bubble that emerged in the 2000s?

Created a large number of mortgage backed securities

Assuming the price of Lays Potato Chips is higher in the rest of the world than in the U.S. and all countries trade with each other, which of the following would happen to the price, consumption, and production of Lays Potato Chips in the U.S. if the U.S. instituted a trade embargo that stopped all international trade?

Decreased price, decreased domestic production, increased domestic consumption

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 implemented several pieces of gold legislation. What was he seeking to do?

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

Why did Charles Goodyear begin to study how to improve the properties of rubber?

He was told that it was in demand and he could make a lot of money

Why do investors purchase mortgage backed securities?

Higher return relative to other investments and protected by collateral

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

Allen (1991) argues which of the following:

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

What are bank notes actually?

IOUs of individual banks

In order for an invention to receive a patent, it must have certain properties. Which of the following is not one of those properties?

Important

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

According to the Von Thünen's Featureless Plain Model, what do we expect to occur to the price of land when a high speed train with much lower costs is built north from the city center of New York?

Increase for most places along the route but remain similar in the city center of NYC

Assuming the price of printers is lower in the rest of the world than in the U.S. and U.S. has tariffs on foreign imports, which of the following would happen to consumer and producer surplus of printers in the U.S. economy if President Trump reduces the tariff on printer imports from all other countries?

Increased consumer surplus and decreased producer surplus

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

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

While democracy is often associated with higher economic growth, the relationship mainly is _______?

Indirect and works through its influence on the establishment of good institutions

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

The Sherman Antitrust Act of 1890 was the first law that allowed for the punishment of monopolies and trusts. However, it did not initially see much success because _____?

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

Banks help solve the maturity mediation problem. What describes this problem?

Individuals need short-term access to deposits, but loans often need to be long-term

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

We gave the Ogallala Aquifer as an example of the tragedy of the commons. How did the tragedy manifest itself?

Individuals who owned the land used too much water

Why did Ford's plan to raise salaries to $5 a day not greatly reduce profits?

It allowed the company to attract and retain the best workers thus raising productivity

What is the General Revision Act of 1891?

It allowed the president to set aside forest reserves

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

What is the drawback of buying stock on margin?

It magnifies the losses of downturns in stock prices

The U.S. did not allow regular 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

Engerman and Sokoloff (2002) argue that the United States' sustained growth relative to other colonies and countries was the result of _____?

Its lack of indigenous labor or ability to produce cash crops on plantations

While both Jefferson and Hamilton want a rectangular land registration system, who eventually won out in terms of prices for government land?

Jefferson

Which of the following events encouraged a large-scale but temporary increase in U.S. factory incorporations?

Jefferson Embargo of 1807-1809 and subsequent War of 1812

Jefferson and Hamilton represented the respective sides of the nation's early debate on land policy. Which of the following is a correct depiction of their competing views:

Jefferson wanted land to be sold very cheaply in order to encourage democracy, while Hamilton wanted land to be very expensive in order to encourage non-agricultural industries

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

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

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

Electricity is fairly efficient, but what is its main drawback?

Needs to be around an area that has invested in an electrical system

There are often provided two likely causes for the depth of the Great Depression. Of the two, _____ highlights how hard it was for firms to receive loans because bank failures destroyed borrowing relationships.

Non-Monetary Effects

Assuming the price of Coca-Cola is higher in the rest of the world than in the U.S. and U.S. freely trades with other, which of the following would happen to the price, consumption, and production of Coca-Cola in the U.S. economy if President Trump imposes a tariff on Coca-Cola imports from all other countries?

Nothing would occur in the U.S.

Assuming the price of Coca-Cola is higher in the rest of the world than in the U.S. and U.S. initially has no tariffs, which of the following would happen to the price, consumption, and production of Coca-Cola in the U.S. economy if President Trump imposes a tariff on Coca-Cola imports from all other countries?

Nothing would occur in the U.S.

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

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

Perfect Competition

According to the anti-trust case study, what particular problem drove the rise in trusts and collusion in the United States and why?

Periodic overcapacity

Clearinghouses provided some help to locations during financial panics. Which of the following best describes this approach?

Provided emergency liquidity to members

Which was not a given reason why we typically measure national power using output?

Provides a measure of a country's preferences

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 operated in a variety of locations and provided 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 endogenous way?

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

Railroads companies were often accused of agreeing to charge a high common rate and not lowering it. This practice is specifically called ______.

Rate fixing

The main purpose of the Troubled Asset Relief Program under Bush was to ______?

Remove risky and illiquid assets from the market and provide cash to the system instead

While we do not have data between 1780 and 1840, we know that growth per capita after 1840 was faster than before 1780. This has led many scholars to point towards various causes of the accelerated growth. Which of the following authors argued that the so-called "take-off" was driven by infrastructure and railroad investment?

Rostow

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

Rubber sold in the country to eventually be used to make tires

How did the U.S. government solve the specific land policy issue of "graduation"?

Selling off unsold land for very cheap

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

Which of the regions of American colonies produced mostly for trade with Britain?

South

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

Spain

Why did the financial innovations of the 1990s and 2000s help lead to the Great Recession?

Spread housing market risk across the entire financial network

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

Startup

______ mortgage describes a mortgage with an interest rate that dramatically increases after a year or two?

Teaser Rate

Patenting is important for economic growth, but is subject to a "balancing act". Why is this the case?

The Patent Office needs to encourage initial invention, but make sure protection does not discourage future inventions

Which of the following was 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 because _______.

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

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

Due to the lack of infrastructure spending, many roads and bridges are starting to break down meaning that there are increased transportation costs within the U.S.. What would we expect to occur to the prices received by U.S. producers after shipping costs and the prices paid by U.S. consumers at the register as a result of the increased costs if the U.S. does not engage in international trade?

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

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

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)

How did credit ratings agencies play a role in the build up to the Great Recession?

They helped firms build the worst top rated MBS bonds possible

Clearinghouses were not able to prevent financial panics from occurring because _______?

They only provided funds to members after a panic had started

Why were colonies helpful under the mercantilism approach?

They provided resources and outputs that the main country did not

The First and Second Banks of the United States reportedly slowed down growth of speculative credit and helped maintain stability in the financial system. How did they achieve this?

They used their branches to threaten other banks with redemption of their notes

Before 1900, manufacturers were focused on decreasing costs by increasing the quantity produced. However, after 1900, modern manufacturing firms began to focus on increasing their _______ (i.e., the speed of their production).

Throughput

According to the anti-trust case study, which of the following is not a lower-order generalization that the authors make about the productive efficiencies deriving from economies of scale, long production runs, and concentration of production in the least cost plants?

Tight horizontal integrations often hurt consumers unlike loose horizontal combinations

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

Undertake a system of land and water transportation improvements

Ford lowered costs by bringing a electricity plant, iron ore processing, and a steel mill into the factory as well as purchasing trucks, ships, railroads, glass works, timber forests, iron-ore mines, and rubber plantations. What is this called?

Vertical integration

Why was the Federal Reserve broken into 12 different districts?

Wanted the Fed to properly represent local interests and concerns

Why did Standard Oil fortify their management by shifting from a trust structure to a holding company structure?

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

What are interlocking directorships?

When different companies are run by the same set of executives

Why do we generally consider mercantilism to be a zero-sum game?

With exception of the discovery of new mines, a country can only gain gold or silver whey they take it from another country

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 learn to become efficient

A trademark is an:

exclusive right granted for a word, name, or symbol that indicates the source of the goods and to distinguish them from the goods of others

When trying to calculate the total benefits of the railroad to the nation, we have to account for ______ which consists of benefits to all producers because of the railroad's ability to allow larger markets to develop and goods to arrive faster.

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