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ECON 2200 Exam 1 (103 Cards)

What are the 5 sources of Productivity growth?

Technology
Specialization and division of labor
Economies of scale
Investment in human capital
Managerial and organizational improvements

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What source of Productivity growth did Paul David do research in? On what specifically did he do research in?

Technology - electric motor on the assembly line

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When you increase inputs by 10% and outputs increase more than 10%, what is that called? Outputs equal to 10%? Less than 10%?

1. Economies of scale
2. Constant returns to scale
3. Diseconomies of scale

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T/F: Education and Healthcare are sources of Productivity growth.

True - Investment in human capital

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Which Productivity growth source is characterized by the following?

-Gives you better information to make better decisions
-better inventory control
-performance based promotion and pay
-improve accounting methods

Managerial and organizational improvements

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Douglas North said that "Institutions Matter" (pg. 17 in book). He proposed the "rules of the game." What are the "rules of the game" (definition)?

the rules under which society operates

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provide incentives that affect choices and can thus drive/limit productivity/economic growth.

Institutions

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Who said "Institutions matter"?

Douglas North

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What are the five "rules of the game" by Douglas North?

1. stable and limited government
2. relatively peaceful domestic and international relations
3. secure money and banking system
4. laws establishing and protecting private property rights
5. market-oriented economy

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When was the Reunification era?

1865-1920

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From 1860 to 1920, the number of farms (increased/decreased) and the number of acres farmed (doubled/halved). What was this due to?

increased

doubled

the "privatization" of government land

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Which act, according to the book, "continued the liberalization of the federal government's land policy." It provided 160 acres of land per homestead (320 for married couples).

Homestead Act of 1862

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Why, between 1870 and 1900, were less than 20% of farm acres owned by Homesteaders?

b/c the land was mostly only suitable for grazing livestock, which required much larger farms. 160 acres wasn't enough.

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What is the most widely used method of measuring economic growth?

Real GDP

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Who famously said, "Without theory history becomes undisciplined and disorganized, shaping its material by whim, or purely by rhetoric. Without history, theory loses any grounding in the actual course of human events."

William Parker

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Who said this? “History is a vast body of information essential to making public policy decisions. Indeed, history is the testing grounds for economic theory and principles taught in economics classes..."

Walton and Rockoff

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When was the birth of Economic History? Who were its fathers? What was the book that established the field?

1. 1958
2. Conrad and Meyer
3. "The Economics of Slavery in the Antebellum South"

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What did Conrad and Meyer's book question?

the profitability of slavery

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What conclusion did Ulrich Phillips come to about the profitability of slave ownership? Why?

slave ownership unprofitable
the price of cotton was stable while the price per slave was increasing

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Conrad and Meyer's research and conclusion found a different result because they used an _ _.

Asset Pricing Model

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What defines the price of an asset according to the asset pricing model?

the stream of net benefits that the buyer expects to receive

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Conrad and Meyer found that the was increasing, meaning slaves became .

marginal product

more productive

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Why was Ulrich Phillip's conclusion incorrect?

He forgot to consider productivity! He also didn't use any kind of model.

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What is Cliometrics?

a technique to interpret economic history based on statistical analysis of sources

basically the use of the scientific method to test

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What is the "Big Question" of economic history?

Why do some countries develop more rapidly or more steadily than others?

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What are the "Five Propositions for Economic Reasoning" outlined in Econ Insight 1.1?

People make choices (scarcity)
Choices impose costs (opportunity cost)
incentives matter
institutions matter
opinions are more valuable if they are based on facts

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What is the rule of 70? How do you calculate it?

helps to evaluate growth rate

70/annual growth rate of x = approximately the number of years until it doubles

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America is a "Mixed" economy with an emphasis on markets. What does this mean?

daily functions of the country are determined by the private sector as well as being taken care of by the government (ie. mail, education, law enforcement)

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What is the US population to the nearest 1 million people as of July 2010?

310 million

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What is a real figure and what is a nominal figure?

real - more reliable b/c they take into account inflation

nominal - doesn't take into account inflation

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What is the Purchasing Power Parity?

tells you how much one currency is compared to another

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What is GDP? What was the 2009 US estimate PPP GDP approximately?

Gross Domestic Product - total market value of all final goods and services produced in domestic economy in a year

$14 trillion

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GDP by sector for 2008 in Agriculture, Industry, and Services was approximately what?

A: 1%
I: 22%
S: 77%

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IMPORTANT: What is the average annual growth rate of real GDP over the past 250 years?

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What is the approximate per capita GDP in the US (2008)?

$46,400

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What three things are not included in a nation's GDP?

household production
black market
intangible investments (R&D)

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IMPORTANT: What is the real GDP per capita growth rate increase over the past 250 years?

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T/F: Real GDP per capita in various regions of the US has tended to diverge.

false - converge

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What are the 2 reasons rGDP has tended to converge in the US? Explain them.

Labor Migration - equilibrium will ensue because of the "osmosis" of labor migrants from low to high wage regions. This is called Wage Convergence

Capital Migration - as capital leaves, the demand for labor decreases, as capital increases the demand for labor increases

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Approximately % of the income in the nation is made by the 1/5 richest households while . % of the income is made by the 1/5 poorest households.

50%

3.4%

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Since the mid 19 s, the income gap has grown.

1980s

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What happened during the mid-1980s that caused the income gap to increase? (3 things)

1. Reaganomics - businesses were laissez-faire towards taxes
2. Globalization benefits high-income households
3. Labor Unions got weaker, so the poor got poorer

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Between 1975 and 1991, only % of those in the bottom quintile stayed there.

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What is the July 2010 unemployment rate?

9.5%

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For what type of unemployment is a 0% rate desirable?

Cyclical

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What is Frictional Unemployment?

temporarily in-between jobs looking for something more productive

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What is Structural Unemployment?

obsolete skill set causes unemployment

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What is Cyclical Unemployment?

unemployment from recession; decreased demand causes a need for fewer workers

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Why are steady, predictable inflation rates desirable?

-need to be able to predict the rate for lending and spending
-interest rates are difficult to establish when there is uncertainty

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How do you find the Nominal Inflation Rate?

NIR= real IR +expected inflation rate (or minus expected deflation rate)

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T/F: Household ownership of consumer goods is an indicator of economic prosperity.

True

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What is Robert Fogel famous for? What 4 things did he examine?

pioneered Biomedical data related to well-being

1. Height (risen)
2. Death rates (disease related have decreased b/c of antibiotics)
3. Infant mortality (dramatic decrease)
4. Life expectancy at Birth (2010: 78 yrs)

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Define Human Capital. What is the literacy rate of those 15+ (2003)? Persons who are 25+ and HS grads = %; college grads: %

human capital - acquired skills of the labor force

86%
29%

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During what year did Economic history enter "adulthood"? Why?

1993: Fogel and Douglas North were jointly awarded the Nobel prize for their contributions in economic development

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What are the two determinants of development?

1. Factor Endowment: land, labor and capital
2. Productivity: output per unit of input

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What are the 5 sources of productivity growth?

Technology
Specialization and division of labor
economies of scale
investments in human capital
managerial and organizational improvements

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Explain "rules of the game."

institutions provide incentives that affect choice and thus drive economic development

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In the last half the of the 19th century, Agriculture was (growing/shrinking) in output.

growing

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During the period between 1870 and 1910 Corn's land productivity (increased, decreased) slightly. Wheat's land productivity (increased/decreased) slightly.

Corn: decreased

Wheat: increased

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An increase in acreage was caused by the increased use of . Increased labor productivity also helped the general growth in output.

capital

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Increases in Agricultural output are also due to biological innovations like and the combating of .

hybrids

disease

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From 1860 to 1920, the number of people fed per farmer almost , a sign of increased labor productivity, which allowed more people to live in cities and thus facilitated industrial growth.

doubled

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From 1860 to 1910, the US had a agricultural surplus, so increased.

exports

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Regional Specialization reflects the growth of " ."

national markets

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What is comparative advantage?

have a relatively lower opportunity cost

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The increased specialization of farmers made them more reliant on . They also become increasingly reliant upon credit.

markets

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Anne Mayhew found that farmer debt (increased/decreased) because farmers became increasingly vulnerable to foreclosure when the price of farm products decreased or decreased.

increased

output

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Increased specialization led farmers to become more reliant/vulnerable on/to what 3 things?

1. markets
2. transportation (notably Railroad)
3. price fluctuations

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What were the 2 problems facing farmers from 1864 to 1896?

1. Despite rising output, income growth slows
2. Adverse Terms of Trade (farmers had to produce 16% more output to maintain constant real income)

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Why were farm prices falling so rapidly relative to other prices?
1) Domestic output was                  .
2) Supply                  tremendously and as a direct outcome, the price of farm products                  dramatically.
3)                  in demand counteracted by a larger                  in supply.

1) increasing
2) increased; decreased
3) Increase; increase

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Food demand is Price (elastic/inelastic) because a price decrease causes the Qd to increase.

inelastic

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What is the formula for Price Elasticity of Demand? If it is above 1, then it is .

abs ( %Δ Qd / %Δ Price )

elastic

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Food demand is income . This means...

inelastic

...that an increase in income will result in a rise in demand of food.

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What is the Income Elasticity of Demand formula? If it is greater than 1, then it is .

%Δ Qd / %Δ Income

elastic

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The farmers' response to adverse terms of trade and excess food was .

export

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By 1901, the US was exporting about 1/ of its grain production. This left farmers vulnerable to international market and other countries' .

1/3

forces

tariffs

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Since farmers didn't understand market forces, they blamed their problems on what four things?

1. Unfair mortgage/lending rates by banks

2. "Eastern bank monopoly"

3. Excessive Freight rates (RR)

4. Manufacturers' high prices on farm equipment

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What was the "Eastern bank monopoly"? Why was there no such thing?

farmers thought they were conspiring to charge them higher interest rates for lending. Farmer's debt was increasing due to increased purchases of land and capital.

Rates are inherently higher for farmers b/c there is more chance of default.

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Were claims of excessive freight rates valid? Why?

No; Higgs did a study in 1970 that determined there was not monopoly on long hauls, but there was some limited evidence for short run hauls. However, long hauls were all that were important to farmers.

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What is the point of Table 15.5? (ON TEST)

Interest rates for mortgages were falling in Midwestern states despite farmers' claims.

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What did the Grangers lobby for?

rate regulations

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As a result of the Grangers' lobbying, the first US regulatory commissions were created at the level. They regulated rates that and could charge.

state

Railroads

Store facilities

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The Grangers offered that sold farm equipment, supplies, and household items at reduced prices.

Cooperative

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What did the Supreme court find in Munn v. Illinois (1877)?

States have the right to regulate rates/prices of Utilities whose goods and services are "clothed in the public interest".

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What did the Timber Culture Act of 1873 do?

It encouraged the growth of timber in arid regions by giving 160 acres of free land to anyone who agreed to plant trees on 40 acres of it.

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What did the Desert Land Act of 1877 do? What was a drawback of this act?

It sold 640 acres of land at a time at $1.25 per acre with the stipulation that the land must be irrigated within 3 years.

The drawback is the lack of definition of "irrigation".

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What did the Timber and Stone Act of 1878 do? Why was it pricier?

It sold land at $2.50 per acre. It was pricier because the land was rich with timber and stone.

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What did the Timber-Cutting Act of 1878 do? What was the stipulation?

It authorized residents of certain areas to cut trees on government lands without charge.

The timber MUST be used for agricultural, mining, and domestic building purposes.

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The fraud committed in the Federal land policy primarily benefitted who?

large companies

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What were the goals of the Federal Land Policy?

1. Government Revenues

2. Wide accessibility to public lands

3. Rapid economic growth

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What did the Wabash case prove? What was created because of this?

It found that while the state could not regulate the rates of Railroads, the Railroads were in violation of the Interstate commerce clause.

So, the Interstate Commerce Commision was created in 1887 and became the first federal regulatory commission.

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What was the main goal of the Greenback movement? What were the two reasons they thought it would help?

The main goal was "Reflation." They wanted to print money like what was done during the Civil war to create inflation so farmers would have less money-value to pay back. They also thought this would increase the price of farm products which would lead to more money in farmer's pockets.

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What does Ceteris paribus mean?

Increased money supply equals increased price level

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Would "Reflation" actually have helped borrowers? Would it help to increase the price of farm products?

Yes...in the short term. Increasing the amount of money in the market is good for borrowers that are mid-loan because they will have less money-value to pay back. But when their loan was over and they got a new one, the lenders would compensate by increasing the rate of the new loan.

Yes, but the price of farm products will rise more slowly than the price of everything else, which would still result in adverse terms of trade for farmers.

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What did the "Alliances" support (4 things)? How much support did they receive?

1) Reflation
2) Government regulation of big business and monopolies
3) Government ownership of Railroads and communication facilities
4) Federal Government extension of low-interest loans to farmers with surpluses and land as collateral

They received very little support from voters or Congress.

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The "Alliances" and the Populist party shared some common beliefs like reflation government control of big-business. What additional goals did the Populist party have (two things)?

1) Government ownership of banks and control of money supply
2) Government ownership of firms that compete with private firms in key industries

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Why does the Government unable to effectively run a company?

It has no incentive to profit maximize or cost minimize.

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Was the Populist party successful?

Fairly - the Populists were elected to Congress in the 1890s.

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Farmers wanted the Federal Government to do something about their situation. What was their response (3 things)?

1) Dept of Agriculture was created and expanded
2) Morrill Act
3) Hatch Act

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What three objectives did the Dept of Agriculture have (be curt)?