Economics 113 Midterm: November 7

Economics 113 Midterm: American Economic History: November 7

(A) One-Sentence Identifications (40 points): Briefly state the importance of each of the following people/places/things/concepts for American economic history since 1890 or so. A fgood strategy is to tie each ID into one or more of the major factors of production: land, labor, capital, technology, and institutions:

Morrill land grants; George C. Marshall; NIRA (National Industrial Recovery Act); GI Bill; Gilded Age; William Jennings Bryan; Bretton Woods; Brown v. Board of Education of Topeka, Kansas; UAW (United Auto Workers); U.S. Steel; typhoid; /nurses/secretaries/teachers/house cleaners/cooks and waitresses/; NWLB (National War Labor Board); immigration; Henry Ford; Crash of 1929; Federal Reserve; Social Security; Herbert Hoover and balanced budgets; GATT.

(B) One-Paragraph Discussions (40 points): Write one paragraph (three to six sentences) answering each of the following questions:

1. Why did the distribution of income among white male Americans become so much more equal between the 1920s and the 1960s?
2. What role did the United States play in putting western Europe on the right economic track (or a right economic track) in the years after World War II?
3. Why was America so successful and efficient as a producer of manufactured goods in the first half of the twentieth century?
4. What are the arguments for the belief that the high level of stock prices in August-September 1929 reflected justified if optimistic confidence in the future of the American economy? What are the arguments against?
5. Why do Alesina, Glaeser, and Sacerdote believe that racial divisions are the most important cause of the difference in the size of the welfare state between the United States and western Europe? Do you think they are right? Why?

(C) Essay: Write an essay on one of the two following topics, or do the exercise at 3 below (40 points):

1. Outline the major changes in the economic role of women in America in the twentieth century. Draw up a balance sheet: in your estimation, which changes have been broadly good? Which changes have been broadly bad?

2. The Great Depression and the political reaction to it changed the American economy. How did these change the American economy? To what extent were the changes permanent?

3. Start with the simplest possible Keynesian model of the economy:

Y = C + I; production Y equals consumption C plus investment I

C = c_yY; consumption C is a constant fraction c_y of income Y

* Solve for Y as a function of the marginal propensity to consume c<sub>y</sub> and investment I. 
* If the marginal propensity to consume c<sub>y</sub> were to fall from 0.75 to 0.5, what would you expect to happen to the size of fluctuations in Y if fluctuations in I remained of the same magnitude? 
* Between the pre-WWII era and the recent past, the marginal propensity to consume had fallen from 0.75 to 0.5, and yet the size of fluctuations in Y had fallen by three-quarters. What would you conclude about the changing size of fluctuations in investment I? 
* Four major factors can be listed as contributing to the relative smallness of the business cycle today: increasing ability to borrow which means that consumption spending no longer tracks income as closely; the government’s progressive tax system which means that fluctuations in national income do not immediately create equal fluctuations in personal income; less of a business tendency to panic; and better monetary policy which reduces the size of fluctuations in interest rates that disturb investment spending I. Roughly, how much of the decline in the business cycle can be attributed to the first two factors, and how much to the last two?

Economics 113 Midterm: American Economic History: November 7:

(A) One-Sentence Identifications (40 points): For each of the twenty below, briefly state the importance of each of the following people/places/things/concepts for American economic history since 1890 or so. A good strategy is to tie each ID into one or more of the major factors of production: land, labor, capital, technology, and institutions:

Morrill land grants; George C. Marshall; NIRA (National Industrial Recovery Act); GI Bill; Gilded Age; William Jennings Bryan; Bretton Woods; Brown v. Board of Education of Topeka, Kansas; UAW (United Auto Workers); U.S. Steel; typhoid; /nurses/secretaries/teachers/house cleaners/cooks and waitresses/; NWLB (National War Labor Board); immigration; Henry Ford; Crash of 1929; Federal Reserve; Social Security; Herbert Hoover and balanced budgets; GATT.

(B) One-Paragraph Discussions (40 points): Write one paragraph (three to six sentences) answering each of the following questions:

1. Why did the distribution of income among white male Americans become so much more equal between the 1920s and the 1960s?
2. What role did the United States play in putting western Europe on the right economic track (or a right economic track) in the years after World War II?
3. Why was America so successful and efficient as a producer of manufactured goods in the first half of the twentieth century?
4. What are the arguments for the belief that the high level of stock prices in August-September 1929 reflected justified if optimistic confidence in the future of the American economy? What are the arguments against?
5. Why do Alesina, Glaeser, and Sacerdote believe that racial divisions are the most important cause of the difference in the size of the welfare state between the United States and western Europe? Do you think they are right? Why?

(C) Essay: Write an essay on one of the two following topics, or do the exercise at 3 below (40 points):

1. Outline the major changes in the economic role of women in America in the twentieth century. Draw up a balance sheet: in your estimation, which changes have been broadly good? Which changes have been broadly bad?

2. The Great Depression and the political reaction to it changed the American economy. How did these change the American economy? To what extent were the changes permanent?

3. Start with the simplest possible Keynesian model of the economy:

Y = C + I; production Y equals consumption C plus investment I

C = c_yY; consumption C is a constant fraction c_y of income Y

• Solve for Y as a function of the marginal propensity to consume c_y and investment I.
• If the marginal propensity to consume c_y were to fall from 0.75 to 0.5, what would you expect to happen to the size of fluctuations in Y if fluctuations in I remained of the same magnitude?
• Between the pre-WWII era and the recent past, the marginal propensity to consume had fallen from 0.75 to 0.5, and yet the size of fluctuations in Y had fallen by three-quarters. What would you conclude about the changing size of fluctuations in investment I?
• Four major factors can be listed as contributing to the relative smallness of the business cycle today:
  • increasing household ability to borrow which means that household consumption spending no longer tracks income as closely;
  • the government’s progressive tax system which means that fluctuations in national income do not immediately create equal fluctuations in personal income;
  • less of a business tendency to panic; and
  • better monetary policy which reduces the size of fluctuations in interest rates that disturb investment spending I.
• Roughly, how much of the decline in the business cycle can be attributed to the first two factors, and how much to the last two?