ECON 2200 Exam 3 Study Guide (Moore)
ECON 2200 Exam 3 Study Guide (Moore) ECON 2200
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Date Created: 04/04/16
ECON 2200-Moore Study Guide for Exam 3 Exam 3 will be held in our regular classroom on Wednesday, April 6. The exam will cover the following sections of the syllabus: II. The Reunification Era (c. 1865-1920) Money and Banking after the Civil War Walton & Rockoff, Chap 19 (Focus on p. 345-354 and p. 359, but you may need to review the entire chapter for this material to make sense.) Rockoff, Hugh, “The Wizard of Oz as a Monetary Allegory,” The Journal of Political Economy, Vol. 98, No. 4, (August 1990), pp. 739-760. IV. Boom and Bust (c. 1920-1940) The Economy of the Roaring Twenties Walton & Rockoff, Chap 22 To prepare for the exam, please review the assigned reading, your lecture notes and other materials on eLC, and Quizzes 5-6. Remember that the topic outlines (posted on eLC) are ONLY outlines; they are not an adequate substitute for good lecture notes. As you review, pay particular attention to figures and tables that we discussed in class. The exam will consist of 35-40 true/false and multiple choice questions. Upon completing the exam, you must turn in your scantron and your exam booklet. However, you will be given a separate sheet on which to record your answers. You will be able to check your answers using the answer keys that will be posted on eLC following the exam. For the exam, you will need a #2 pencil and a photo ID. Calculators, cell phones, laptops, etc. may not be used during exams. Below you will find some questions to use as a guide to your studying. While this list is not exhaustive, it does illustrate the types of questions you should be prepared to answer. Be sure to review economic terms/theories, such as: deflation, quantity theory of money, velocity, monetary policy, fiscal policy, human capital, efficiency wages, elasticity, etc. 1. Describe the original structure of the Federal Reserve System (Fed) that was created in 1913. What were the requirements for commercial banks that wished to join the Fed? 2. What are the typical functions of a central bank? List and explain each function. How well did the early Fed perform the central bank functions you’ve described? 3. Other than metal coins, what types of money circulated in the US in the late 1800s? 4. If the US officially had a bimetallic standard until 1900, why did it operate on a de facto gold standard for most of the late 1800s? 5. Use the Quantity Theory of Money (QTM) and Figures 19.1-19.2 to discuss the th relationship between the money supply (M) and the price level (P) in the late 19 century. 6. During the Civil War, the US was forced to suspend payment of specie. Why? Use data from Table 19.2 to support your answer. 7. What had to happen in order for specie payment to resume following the Civil War? Using the QTM, describe and explain the differing views of Republicans and Democrats on this issue. 8. Describe the actual events that eventually led to resumption of specie payment in 1879. Use data from Table 19.2 to support your answer. 9. Why did proponents of the free silver movement call the Coinage Act of 1873 “a crime?” Describe the market and mint values of silver in 1873. What happened to the silver market after 1874? Describe the market and mint values of silver after 1874. 10. What groups tended to support the sound money position? Explain their position. 11. What groups tended to support the free silver movement? What did they want the government to do and why? 12. Describe the legislative response of Congress to the silver controversy (first in 1878, and again in 1890). To what extent were free silver proponents satisfied by this legislation? Support your answer with a graph illustrating changes in the silver bullion market in the 1870s and 1880s. 13. What happened to the US money supply following the Sherman Silver Purchase Act? Why was the Sherman Silver Purchase Act repealed? (Describe the concerns of “sound money” advocates, including President Cleveland.) 14. While the aggregate price level fell for most of the late 1800s, after 1896 the price level began to increase. What caused this change in the movement of prices? (Use the QTM to support your answer.) How did these events impact (1) the US economy and (2) the free silver movement? 15. The US officially adopted the gold standard in 1900. At the time, was this a particularly controversial event? Why or why not? 16. Carefully review “The Wizard of Oz as A Monetary Allegory” (Rockoff 1990). You may need to review some material covered in Chap 19 of your text in order to fully understand the article and the events surrounding the 1896 election. Be sure you can give detailed answers to each of the questions I have provided about the article. Use Table 1 from the article to support your answers. 17. List and define the categories of spending that contribute to aggregate expenditures (= aggregate demand, at a given price level). 18. Review the definitions of fiscal policy and monetary policy (as defined earlier this semester). 19. List and describe the 3 “traditional” monetary policy tools used by the Federal Reserve (Fed). For each policy tool, you should be able to explain the relationship between the policy tool, the monetary base, bank reserves, the supply of loanable funds, interest rates, the money supply and aggregate demand. Use the policy tools to discuss the difference between expansionary and contractionary monetary policy. 20. Why is it very uncommon for the Fed to use the reserve requirement to conduct monetary policy? 21. What is the “fed funds rate?” How does the Federal Reserve use the fed funds rate in conducting monetary policy? 22. What was the preferred policy tool of the Fed in the 1920s? Which policy tool has the Fed typically used during your lifetime? 23. World War I ended in 1919. Briefly describe the American economy immediately following the War's end. Focus on the expenditure components of aggregate demand. 24. Discuss how market forces, monetary policy and fiscal policy led to changes in US aggregate demand after 1920, and describe the recession of 1921-22. Was Fed policy procyclical or countercyclical during this period? Explain. 25. Use a graph to illustrate changes in the US macroeconomy between 1919 and 1922. Does the data for this period support the predictions of your graph? Explain. 26. Discuss some of the changes in American demographics and lifestyle that characterized the “Roaring 20s.” Be sure to discuss urban migration, the growth of suburbs and increased household ownership of consumer durables. 27. Briefly describe how innovation by Ford changed the mass production process for cars (and eventually other manufactured goods). How did Ford’s innovation affect automobile output? productivity? per-unit cost? 28. Describe the price changes that ultimately made cars, particularly the Ford Model T, affordable for the average American household. How did increased automobile ownership affect American lifestyles? 29. Discuss the impact of credit and advertising on the consumer durables market. 30. Discuss the rise and fall of the construction sector during the 1920s. Explain the terms of the typical home mortgage during the 1920s. Describe trends in housing prices, foreclosure rates and mortgage debt. Why did increases in outstanding mortgage debt become particularly problematic after 1925? 31. Describe increases in manufacturing output during the 1920s. How did investments in technology and capital encourage this growth? 32. Describe how existing institutions (including the executive branch, regulatory agencies and courts) encouraged the 1920s manufacturing boom and the continued growth of “big business” in America. 33. How did 1920s economic growth impact non-farm labor? Describe gains made by labor during this period. Discuss the economic forces that led to increases in real earnings. 34. What are “efficiency wages”? How can manufacturers (such as Henry Ford) benefit from paying efficiency wages to workers? 35. What was the “High School Movement” of the 1920s, and why did it have so much success in the US? Discuss research by Goldin and Katz (2000) on the development of public high schools. 36. Describe changes in US immigration laws in the 1920s. What forces motivated the passage of new laws limiting immigration? How did these laws affect the domestic labor market? 37. Describe changes in labor union membership during the 1920s. Why did labor unions fail to gain members during the growth period of the 1920s? 38. Assume a progressive income tax system. Explain the difference between the typical taxpayer’s marginal tax rate and her average tax rate. 39. Describe the key features of US fiscal policy during the 1920s. Why, as seen in the 1920s, do decreases in marginal tax rates sometimes lead to increases in tax revenue? Describe some ways in which government spending in the 1920s differed from government spending today. 40. Describe the key features of US monetary policy between 1922 and 1929. Use Table 22.6 to discuss trends in M, P and Y. 41. Bank failures were very common in the 1920s. Describe the Fed’s position on assisting these banks. Research by Eugene White (1984) cast light on the types of banks that were most prone to failure and the institutional constraints these banks faced. Explain White’s findings and use them to critique the Fed’s position. 42. Why are the 25 years prior to 1920 described as a “golden era” for American farmers? What impact did World War I have on US farmers? 43. Why was the deflation of the early 1920s particularly harmful to farmers? (Describe how wartime investments in land and capital led to problems for farmers.) Describe the trend in farm foreclosures for 1918-1929. 44. Describe movements in farm prices and American farmers’ terms of trade in the early 1920s. Be sure that you can explain “adverse terms of trade.” 45. In class, we noted that farmers in the 1920s faced their “traditional problems.” Discuss these problems, using the concept of elasticity. 46. Struggling American farmers in the 1920s sought attention from the federal government. One program that was debated, but never enacted was a plan to institute parity prices for farm products. What are “parity prices?” Describe the features and legislative history of the McNary-Haugen bills. 47. What farm legislation was actually enacted to assist farmers in the 1920s? (Discuss each of the programs described in Chap 22 of your text.) How effective was this legislation in easing farmers' distress? 48. The SUPPLY of farm products is price elastic. Why does this fact mute the impact of federal programs aimed at supporting agricultural prices?
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