ECON U.S. Economic History II John Lovett. Exam 1 - Fall 2015

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1 Exam 1 - Fall 2015 Use a code name to take this exam. Write your real name and your code name on the noc sheet when you leave. Code Name: Objective Section: 70 points 2.0 pts each, unless otherwise noted 1. Cotia s GDP/capita is currently $4,000. Assume it will grow by 1.7%/year for 30 years. Below, show me the formula for Cotia s GDP/capita in 30 years based on these numbers. You do not have to solve the formula, just show it to me. Use specific numbers (ex. $5,000, 2.75, etc.) rather than definitions. The Value of Haiti s GDP/capita in 30 years = 2. Use a rule of thumb (i.e. an approximation). Tigi s GDP/capita starts at $3,000 and grows by 1.0%/year. Approximately, what will Tigian GDP/capita be after 70 years? $ 3. and 4. Country 1 s GDP/capita is growing at a rate of 0.4%/year. Country 2 s GDP/capita is growing at a rate of 1.6%/year. 3. Which of the graphs below best describes their GDP/capita over the next 5 years? a. b. c. d. 4. Which of the graphs above best describes their GDP/capita over the next 100 years? 5. Chapter 8 of our text discusses the transition from a pre-modern era to modernity. Which of the following best define this modernity? a. the era in which it is normal for living standards to markedly increase in a single lifetime b. the era in which the world (i.e. some nations) first experiments with democracy c. the era in which diminishing returns to physical capital finally kick in 1

2 6. Which graph best describes the living standards of the richest 20% of nations (top line), and the poorest 20% of nations (bottom line), over the past 1,000 years? a. b. c. d. 7. How does the concept of diminishing returns affect the ability of an economy to sustain high growth rates of Real GDP/capita? a. Adopting a specific new technology in one year can actually hinder growth in future years. b. Accumulating machines and other physical capital will only take an economy so far. Changes in technology are needed to achieve sustained growth of living standards. c. Sometimes an all or none approach should be taken to increases in capital. An economy needs to build enough capital to get past the threshold of growth or the capital will contribute little. 8. What is the main method by which the United States increases its capital stock? a. Savings. People put money in banks, bonds, stocks, etc. This money becomes available for firms wishing to finance new physical capital. b. Taxes. People (not always willingly) give money to the government. Among its other expenses, the government makes this money available to finance new physical capital. c. Recycling. Old consumer goods are recycled and their products turned into industrial goods. d. Spending on consumption. When people spend their money on consumption goods, this creates resources such as labor, etc. that can be used to produce new physical capital. 9. According to text & lecture, a major reason for high U.S. growth of GDP/capita during its early years is: a. abundant land The early United States had vast amounts of relatively abundant land making it easy for the U.S. to grow rapidly and giving most citizens a shot at owning property. b. Free masonry. Free Masons were more common in the early U.S. than in Europe or other colonies. Free Masonry espoused property rights, sacrifice for the future, and rule of law. c. the United States came of age exactly during the Enlightenment. Most other nations chose their institutions either before the enlightenment (ex. France) or after (ex. Mexico). d. Luck and culture. The U.S. was lucky in that when it was choosing its governmental institutions, its leaders were of a socially conscience rather than selfish generation. 2

3 10. (4 points) Frangie loves Market Preserving Federalism. Which of the following does he want the national government to do? Check each and every blank that applies. provide most of the funding for new technology private sector companies provide aid to individuals who are poor regardless of what state they live in make sure that there are no interstate restrictions on flows of goods, services, people, or money provide aid (ex. unemployment benefits, housing assistance) to states that are having temporary financial difficulties 11. Market Preserving Federalism is based on the idea that: a. once optimal economic policies are discovered by economists, the national government should be able to make sure all states follow these policies. b. the national government should always run a balanced budget (i.e. spending = taxes). c. if governments have compete to attract economic activity, they will choose better economic systems than if they have little competition It s 2055 and two island countries have just gained their independence from the Netherlands in a violent revolt. Both are now forming their own new governments. In one area, Aruba, income is distributed very equally. In the other newly independent country, Curacao, income is distributed very unequally. 12. Which country is likely to have the higher long-run growth rate of real GDP/capita? a. Aruba, the island with the more equal income distribution b. Curacao, the island with the unequal income distribution c. There is little reason to believe long-run growth will differ based on income distribution. Natural resources, not equality, will likely determine the chosen level of suffrage. 13. What best explains the answer to the previous question (# 13)? a. If there is great inequality, the wealthy are likely to be the ones forming the government. Since the wealthy have much property, they will want to ensure that all property is protected and all members of society are subject to the same rule of law. b. If there is great inequality, the wealthy are likely to be the ones forming the government. The government they chose will protect property and give rewards only to those with access to power and government. Universal property rights and regular rules of law will not be adopted. c. Revolutions against an outside power generally cause internal differences to heal. Because Curacao s rich and poor started out far apart, they will feel a great sense of coming together. Curacao is therefore more likely to adopt a system with larger government (i.e. civic) projects. d. The key to this exam dang that was funny!! 14. Why was Augusto Pinochet discussed in lecture? a. to illustrate the political difficulty a politician faces when he or she adopts policies that will benefit society, but not until many years have passed b. To illustrate a dilemma societies face. A government that is strong enough to enforce good property rights is often strong enough, and willing enough, to take them away. c. He developed the formal theory of fiscal federalism. d. He was the first to suggest that equality might actually be good for growth. 3

4 15. Prior to the Civil War, many from the U.S. South argued that the federal government could not restrict slavery because slaves were the property of the slave owners. Slavery is: a. an enigma for economists. On the one hand economists recognize that slavery is a great moral wrong. On the other hand, slavery definitely falls within the type of private property rights most economists espouse. b. not an example of good private property rights. Under a system of good property rights, a person should have the right to decide how his or her own labor is used. c. one of the main reasons economists think private property rights should not be applied universally. Many economists believe that individuals should only be allowed to keep the rights to their private property if they use their property for what government deems to be the public good. 16. George strongly believes that private markets and good property rights are the primary causes of long-run growth. What does George likely think about government transfers such as Medicaid/Medicare? a. George probably does not like transfers because he believes they will reduce incentives to work. b. George probably likes government transfers because they result in a more restrained government. c. George probably likes government transfers because they allow for greater economic specialization. d. George probably likes transfers in theory but not in practice. He likely believes that political pressures will result in transfers being traded for political favors. 17. Which of the following best describes American Exceptionalism? a. The tendency of Americans, until World War II, to believe they are fundamentally separate from Europe and should not be drawn into European conflicts. b. The idea that the United States is generally a world leader in terms of economic, political, and social institutions as well as economic growth. c. The idea that the United States was governed by different economic laws than Europe primarily because the U.S. had slavery : Match the following laws/acts with their description. It s OK to use a letter more than once. 18. The 13 th Amendment 20. The 14 th Amendment 21. The 15 th Amendment 22. The Reconstruction Act of The Tenure of Office Act of The Tenure of Office Act of 1867, another characteristic a. Vetoed by President Rutherford B. Hayes b. Vetoed by President Samuel Tilden c. Vetoed by President Ulysses. S. Grant d. Vetoed by President Andrew Johnson e. Vetoed by President Abraham Lincoln f. withdrew Federal troops from the South and officially ended Reconstruction g. stated that the right to vote cannot be denied based on race h. a President was impeached for violating this i. stated that citizenship cannot be denied based on race j. banned slavery in the United States k. withdrew Federal troops from the South and officially ended Reconstruction 4

5 25 26 : Match the following plans with their description. It s OK to use a letter more than once. 25. The 10% plan 26. The 10% plan (2 nd characteristic) 27. The 50% 28. The 50% plan (2 nd characteristic) a. a plan favored by the U.S. Congress b. a plan favored by President Johnson c. a plan to confiscate 10% of former slave owners land (only in areas formerly in rebel control) and redistribute it to freed slaves d. a plan to confiscate 50% of former slave owners land (only in areas formerly in rebel control) and redistribute it to freed slaves e. a much more strict plan for allowing former Confederate states back into Congress f. a relatively lenient plan for allowing former Confederate states back into Congress Based on the conclusions offered in the Ransom and Sutch reading, fill in each blank with either <,, or >. The first three have done for you as an example. 1 kilometer < 1 mile 1 / 3 kilogram 0.33 kilogram 1 ton > 500 pounds s hours worked by a typical free Black worker in the U.S. South s material living standards (goods & services) of a typical Black worker in the South 1859 s hours worked by a typical slave in the U.S. South 1859 s material living standards (goods & services) of a typical slave in the U.S. South 31. What, according to Ransom and Sutch, happened to output per Southern Black agricultural worker between 1859 and 1879? Output per worker: a. rose significantly ( 2x as much as before) d. fell slightly ( 85% as much as before) b. rose slightly ( 15% more) e. fell significantly ( ½ as much as before) c. was basically unchanged 32. How did Southern Black farmers typically operate in the post war period? a. They used the land given them by the Freedmans Bureau to produce subsistence goods (ex. corn and hogs) rather than goods for market (ex. cotton). As a result, they remained poor but were selfsufficient. b. Since they did not own land, they sharecropped. They raised cotton on someone else s land and gave the land owner about 50% of the cotton in return. c. Since they did not own land, and White Southerners were used to the slave system, Blacks grouped themselves into work gangs and hired themselves out to land owners. This system persisted unit the early 1900s. d. Being new to markets, they typically sold the land and capital they were given by the Freedmans Bureau at too low of a price. As a result they had few assets and quickly became wage laborers. 5

6 ECON U.S. Economic History II: Rise of the Modern Era John Lovett 33. How else did Southern Black farmers typically operate in the post war period? a. Because they had little money to begin with, they farmed with little/no artificial fertilizer. As a result, they grew less cotton and never became rich. Their organic cotton, however, was more resistant to the Boll Weevil. b. They took the free seed and fertilizer given them by the Freedman s Bureau and usually sold it. As a result, it was mostly Southern Whites that remained as farmers. Southern Blacks typically moved into other trades. c. They borrowed money at planting time for seed, fertilizer, and equipment at high interests. Therefore much of their income went to debt service and little went to buying their own land. 34. The main conclusion of Ransom and Sutch s chapter 1 is that: a. Southern Blacks lived significantly better, in material terms, in 1879 than they had under slavery, Further, their post-war living standards soon matched those of Southern White workers. b. Southern Blacks lived significantly better, in material terms, in 1879 than they had under slavery, but continued to have lower living standards than Southern White workers. c. Southern Blacks lived better, in material terms, under slavery than they did after emancipation. Slavery in the U.S. South was a relatively benign system. d. Southern Blacks lived better, in material terms, under slavery than northern industrial workers. Southern Blacks living standards improved still further after the Civil War. Essay: 30 points Answer 1 of the following 2 questions on the attached paper. 1. What is Market Preserving Federalism? How might it affect growth? Illustrate your answer with an example (perhaps a fictional example). Did the U.S. have Market Preserving Federalism prior to the Civil War? What factors caused the U.S. to have, or not have, Market Preserving Federalism prior to the Civil War? Does the U.S. have Market Preserving Federalism today? Explain. or 2. You and a few of your friends have been transported back in time to Washington, D.C. in the summer of Wow! That was weird! You cannot get back to 2014 and cannot avoid some paradoxes of time travel 1 so don t worry about all that. Instead, use this opportunity to make the U.S. transition from slavery go better both in terms of morality, governance, and good economic institutions. Fortunately, you have a large sum of 1860 s money (time travel is weird that way). Come up with a very explicit plan of how you would tweak history to make the transition from slavery go better. Your goal is to come as close to an equal opportunity society as you can in as short a time as possible. For example, achieving your goals by 1875 is better than Explain your plan and how it would facilitate your goals. 1 That couple you see at a bar would have become your great-great-great grandmother/father but one of your fellow time-travelers is a flirt, steals gran-pappy/mammy away and there goes your whole future. Anyway 6

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