Macroeconomics & The U.S Economy in the 1920s

What technology led to increased agricultural productivity

• The tractor

• The adoption of electric and diesel-powered equipment

Which state was ranked 2nd in share of electricity use in manufacturing

California, due to its hydroelectric capability

How did nationwide electric prices change from 1909 to 1929

They reduced by 50%

What new products were the main sources of innovation in the 1920s

• Automobiles

• Refrigerators

• Radios

• Washers

What new production technology increased innovation with the manufacturing sector

The introduction of electricity and elecric-driven capital goods

What percentage of American manufacturing was powered by electricity by 1929

78%

Ford’s River Rouge Plant

A ninety-three-building complex built outside of Dearborn, Michigan, that produced the Ford Model T

How did the price of the Ford Model T change

Declined from $780 to $360

Bell Labs

A research and development unit owned by Nokia that opened in 1925 and greatly advanced communications technology

Wat was the the growth rate of productivity from 1913 to 1928

1.42 percent

How much did worker’s productivity increase, on average during the 1920s

By 5% each year

How did high school graduation rates change

• More than doubled in Northeastern states

• Quadrupled in the Mid-Atlantic region

• In 1910, graduation rates were around 10% on average in the non-South, but by the mid-1930s, they were over 50%

Wage premium

the amount by which some jobs are compensated more than other forms of work

How did national income per capita change between 1900 and 1929

Rose from $480 to $681 per year

Mutual fund

a pool of money from multiple investors that fund managers use to invest in stocks, bonds, and other securities, allowing small investors to hold a diversified portfolio

When was the first modern mutual fund established

1924

Installment financing

Borrowing a sum of money and paying it back in fixed amounts called “installments”

General Motors Acceptance Corporation(GMAC)

A finance company created by General Motors to provide customers with credit

Share of households with a car by 1930

60%

Leverage

Using debt to increase the potential return on an investment

Consumption smoothing

the practice of maintaining a consistent level of spending or consumption over time, regardless of fluctuations in income

How did the consumer debt to income ratio change

Doubled from 4.5% in 1919 to 9% in 1929

What rose faster, consumption or personal incomes

Consumption

How did national mortgage debt change

Increased from $8 billion in 1919 to $27 billion in 1927

Building and loan associations

Mutually owned institutions or cooperatives that collect regular payments from members to fund home purchases or construction loans

Annual average rate of building and loan assets growth in Western states vs nationwide

Western states had an annual growth rate of 47.1% and the nation had a rate of 25%

Bubble

When market prices exceed true demand and supply forces

Impact of the Miami’s 1926 Hurricane on Florida’s housing bubble

Revealed that homes had been built on virgin land whose fundamentals weren’t solid and ruined investments

How did stock prices change from 1926 to 1928

Rose by 50%

Fixed exchange rate gold standard system

countries define their currency's value in a specific weight of gold, linking currencies together, creating stable, fixed exchange rates

Why was the Federal Reserve Bank partly to blame for the persistence and scope of the Great Depression

Young at the time, they were slow at raising interest rates

Why did cities need to make more money

• They expanded their role in managing rents

• They increased public-service provision

• The number of people working for the government increased

Why was the ability of cities to make money limited

Laws created in response to municipal defaults during the late nineteenth century restricted how much bond finance some cities could undertake

Which California cities declared bankruptcy during the Great Recession

Stockton and San Bernardino

How did city spending change during the Great Depression

fell by up to 30% due to declining revenue

How long did Prohibition last

13 years

When were immigration quotas first introduced

1921

When was a literacy test imposed for immigration

1917

Annual immigration quota in 1921

350,000

Annual immigration quota in 1924

165,000

Immigration and Nationality Act passed

A 1965 Act that abolished the discriminatory national-origins quota system established in the 1920s

Fordney-McCumber Tariff

A 1922 tariff that raised U.S import duties to an average of nearly 40% to protect domestic agriculture

Smoot-Hawley Tariff

A 1930 tariff that raised import duties on over 20,000 goods by roughly 20%

Average tariff rate in 1932

About 20%, more the double the rate in 1920

Which economist did the New Deal policies follow the ideas of

John Maynard Keynes

Keynesian economics

Argues that active government intervention via fiscal and monetary policy is necessary to stabilize economies by increasing consumer spending(demand-side economics)

What percentage of U.S GDP has the federal government accounted for since 1947, on average

19%

Illiquid bank

A bank that lacks sufficient cash or easily saleable assets to meet immediate short-term obligations like customer withdrawals

Insolvent bank

A bank whose liabilities exceed its assets

How did the gold standard increase the global reach of the Great Depression

Forced other countries to increase their interest rates too, to maintain the gold standard fixed exchange rates

How many tractors were there in 1918 vs 1929

80,000 in 1918 and 850,000 in 1929

Which country did U.S farmers have to compete with in the cotton industry

Egypt

Which country did U.S farmers have to compete with in the beef industry

Argentina

What share of American farms faced foreclosure between 1921 and 1929

one-sixth

McFadden Act

A 1927 Act that prohibited banks from creating branches across state lines

How did the McFadden Act contribute to the Great Depression

Limited banks’ ability to diversify their portfolios, leaving them vulnerable to local economic shocks

Impact of the Florida fruit fly infestation of April 1929

Devastated the revenues of Florida citrus farmers and led depositors to run on local banks to withdraw their deposits

How were Florida banks revived in 1929

The Federal Reserve Bank of Atlanta brought stocks of money to commercial banks to reassure customers by showing that the Federal Reserve would ensure the banks’ liquidity

Federal Deposit Insurance Corporation

A 1933 government agency established in 1933 to maintain financial system stability by insuring bank deposits up to $250,000 per depositor

How much did the value of goods decline during the Great Depression

by 25 percent

How much did production fall in the manufacturing sector during the Great Depression

by almost 50 percent

When did exports peak

March 1929

How much did the price of agricultural goods fall from 1929 to 1933

by 55%

When did the secondary recession occur in the 1930s

1937-1938, due to the contractionary monetary and fiscal policy

Contractionary monetary policy

A strategy used by the central banks to reduce the money supply and increase interest rates to fight high inflation

When the Great Depression truly end

1941

Which firm’s bankruptcy was a particularly notable event of the Great Recession

The Lehman Brothers’ bankruptcy in 2008

Fiscal stimulus

The government increasing spending and decreasing taxes to boost aggregate demand

“Too big to fail”

A situation where a financial institution has become so large or so interconnected with other institutions that it would be catastrophic for the whole banking system if that institution went bankrupt

When was the Federal Reserve created

1913

When did the U.S become a majority urban country

1920

When was the Immigration Act / Johnson-Reed Act enacted

1924

What are considered the worst years of the Great Depression

1929-1933

When did Roosevelt introduce the National Recovery Administration

1933

When did the U.S leave the gold standard

1933

Glass-Steagall Act

A part of the Banking Act of 1933 that separated commercial banking from investment banking and created the Federal Deposit Insurance Corporation

When did the Supreme Court strike down the NRA

1935

When was the Works Progress Administration created

1935

When did World War 2 begin

1939

When did the U.S enter World War 2

1941, after Pearl Harbor

When was the Glass-Steagall Act repealed

1999

Dodd-Frank Wall Street Reform and Consumer Protection Act

A U.S law passed in 2010 to prevent the excessive risk-taking that led to the financial crisis of 2008 by increasing accountability, transparency, and consumer protections, and ending “too big to fail”

Ample reserve policy

The use of the Fed’s administered rates to affect the policy rate and overall financial conditions

Consumer Price Index

A key economic indicator that measures the average change over time in prices paid by customers for a fixed basket of goods

Crowding out

The decrease in private investment

Expansion

A period between a trough and a peak in economic activity

Federal funds rate

The rate that banks charge other banks when they lend reserves

Administered rates

Interest rates that the Fed sets to affect the policy rate(Federal funds rate)

Fiscal policy

The use of taxes and spending to influence aggregate demand

Frictional unemployment

Unemployment that results because it takes time for workers to search for the jobs that are best suited to their tastes and skills

Gross Domestic Product(GDP)

The market value of final goods and services produced in an economy during a specified period of time

Imperfect competition

When a market has a small number of sellers, so that sellers have market power

Interest on reserve balances rate(IOR)

The interest rate that the Fed pays banks to hold money in their reserves; this rate serves as a floor for the policy rate

Intermediate good

A good or service that is used in the process of producing other goods and services

Lender of last resort

A lender that functions as the ultimate source of credit to banks during a banking panic

Limited reserve policy

The use of the required reserve ratio, the discount rate, and open market operations by the central bank to manage the money supply—this was the official monetary policy of the U.S prior to 2008

Monetary base

The quantity of currency plus bank reserves

Monetary policy

The use of the supply of money in the economy by the Federal Reserve to influence the level of aggregate demand

Money multiplier

The ratio of the money supply to the monetary base

Moral hazard

the risk that a borrower or insured party will behave in a way that is riskier than desirable for the lender or insurer