Economics 113 Practice Midterm

Economics 113 Practice Midterm

A. One-Sentence Identifications: For each of the fifteen terms 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:

Gold standard; New Deal; Marshall Plan; Plessy vs. Ferguson; General Motors; Theodore Roosevelt; J.P. Morgan; American Federation of Labor; Congress of Industrial Organizations; John Maynard Keynes; Great Depression; Panic of 1907; high-school movement; Herbert Hoover; Pullman strike.

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

1. 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?
2. Why was America a largely laissez-faire economy before the Great Depression? And how did the coming of the Great Depression change Americans' beliefs about the role of government?
3. What were the arguments for and against immigration in the generation before the Great Depression? How do they compare to the arguments for and against immigration today?

C. Essay: Write an essay on the following topic:

Outline the major changes in the economic position of African-Americans over the twentieth century. Draw up a balance sheet.

D. A Comparative Business Cycle Exercise:

Start with the simplest possible Keynesian model of the economy:

Y = C + I; production Y equals consumption C plus investment I C = cY; consumption C is a constant fraction c of income Y

1. Solve for Y as a function of the marginal propensity to consume c_y and investment I.
2. If the marginal propensity to consume c 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?
3. 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?