Economics 101Chapter11

Economics 101Chapter11 - 1 Part III: Background to the...

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Part III: Background to the Modern Period 1900-1945 Objectives for Chapter 11: Classical Economics At the end of Chapter 11, you will be able to answer the following: 1. Briefly describe the main economic trends in the United States from 1900 to 1929. 2. Name the three parts of the Classical Economic Theory ? 3. Show Equilibrium Real GDP on the Aggregate Demand - Aggregate Supply graph. Show the Potential Real GDP on the same graph. Show a recessionary gap. Then show an inflationary gap. (Review) 4. What is Say's Law? Use Say’s Law to explain how an economy will automatically adjust to eliminate recessionary gap. Show this on the graph. Then, explain how an economy will automatically adjust to eliminate an inflationary gap. Show this on the graph. 5. What assumptions are necessary for Say’s Law to be true? 6. What is the "classical quantity theory of money" ? 7. What is the equation of exchange ? Define "velocity" . 8. What assumptions were made to convert the equation of exchange into the classical quantity theory of money? 9. What are the conclusions of the classical quantity theory of money? Show this on the aggregate demand - aggregate supply graph. 10. What conditions were necessary for a nation to be on the Gold Standard ? 11. Explain the operation of the Gold Standard. To answer this, first assume there is inflation in the United States . Then, assume there is a recession in the United States . 12. What were the advantages of the Gold Standard? 13. What were the problems associated with the Gold Standard? 1
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Chapter 11: Classical Economics (latest revision May 2006) 1 . Introduction: The American Economy from 1900 to 1929 In this course, we are studying Macroeconomic principles from the perspective of the economic history of the United States in the 20 th and early 21 st centuries. In Chapter 11, we will begin our historical approach by looking at the period leading up to the Great Depression. In this period from 1900 to 1929, there was a substantial consensus among economists as to the ways by which a market, capitalist economy operated. The ideas for this consensus had been developed from the 18 th century to the early 20 th century. As we will see, these ideas came into question as a result of the Great Depression of the 1930s. However, these ideas still have considerable influence today, especially on the views of political conservatives. Today, these ideas are known as Classical Economics . There are several aspects of the economic history of the early 20 th century that are important for us to understand. First, this was a period of important economic growth in the United States . This period was associated with the introduction of the mass production factory system . The mass production factory system was designed to bring large numbers of relatively low skilled workers together with large amounts of capital on an assembly line. The workers did relatively simple tasks and could therefore be easily replaced. For the first time, large numbers of workers became especially vulnerable to unemployment . But by producing in this manner, the companies were able to lower their production costs.
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Economics 101Chapter11 - 1 Part III: Background to the...

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