Notes from 03%3a22 - 24%3a11

Notes from 03%3a22 - 24%3a11 - Notes from 03/22 24/11...

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Notes from 03/22 – 24/11 Questions to consider as you read: Rockoff, Hugh, “The Wizard of Oz as a Monetary Allegory,” The Journal of Political Economy, Vol. 98, No. 4, (Aug., 1990), pp. 739-760. 1. In order to understand the Oz allegory, you must understand the economic events that preceded the 1896 presidential election. Using the data provided in Table 1 and the following questions, describe these events. a. Describe the trend in prices from 1869 to 1879, as well as for the remainder of the 1800s. o Price deflator in Table 1 shows deflation from 1869 1879 (resumption of payment in specie), then mild inflation in early – 1880s, followed by deflation until 1896 b. Rockoff writes: “It is a fair criticism of the Populists, to which Bryan is not immune, that they did not adequately distinguish between general price level trends. ..and relative price trends that would be impervious to monetary remedies.” (p. 741) Explain this statement. (Hint: See columns 1 and 2 of Table 1. *) o The rapid decline in farm prices was due to market forces ( S). Simply creating inflation thru M would not have corrected farmers adverse terms of trade o *Shows the adverse terms of trade for farmers c. What is high-powered money? [p.741] Describe the trend in the supply of high-powered money from 1869 to 1879*. o “Monetary base” Generally, this includes types of money than can be used as bank reserves. In late – 1800s, this would have included gold / silver coin, federal o * M (on average) 2.6% / year Y (on average) 5% / year M = P Y d. In class we noted that the Quantity Theory of Money assumes that velocity is assumed not to change in the short run. Does this assumption hold for the 1880s? Why or why not? o P. 741 + p. 743; In 1879, US resumed specie payment (defacto gold standard) o In 1880s M (on average) 7.7% / year o Y (on average) 2.7% / year   M V = P Y V fell in 1880s increased demand for holding money balances e. Describe the Panic of 1893 and the depression that followed it. What was President Cleveland’s response to these events? How did Democrats respond?
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Notes from 03%3a22 - 24%3a11 - Notes from 03/22 24/11...

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