Department of Economics Spring 2004University of California Economics 113Berkeley Professor OlneyECON 113 — MIDTERM EXAMINATION #2 QuestionsPART I. Paired Identification (24 points total; 18 minutes total)Choose two of the following three pairs of items. Define or identify each term in the pair (8 points). Then,briefly discuss the connection between the two terms (4 points). Each answer is worth 12 points total. Youshould spend about 9 minutes on each question.1. (a) Use of merchant credit by race, circa 1920(b)-10 -5 0 5 10 15Saving Rate0 1000 2000 3000 4000 5000Household IncomeWhite BlackSaving Rate by Income by Race 1918Department of Economics Spring 2004University of California, Berkeley Economics 113Midterm Examination #2 Page 2 of 62.(a) When and why of this image: (b) When and why of this image: Answer this third question only if you have skipped one of the previous two.Point allocation on this problem only: 3 points for (a), 3 points for (b), 6 points for connection3. (a) Direction of changes (increase? decrease?) in the capital-labor ratios over the late nineteenthcentury in manufacturing and in agriculture(b) Definition and Pattern of Farmers’ Terms of Trade, as depicted in this tableFarmers’ Terms of Trade(1870 = 100)WholesaleFarm PricesConsumerPricesTerms ofTrade1870 100 100 1001880 71 76 941895 55 66 84Source: Walton & Rockoff, Table 15-4Department of Economics Spring 2004University of California, Berkeley Economics 113Midterm Examination #2 Page 3 of 6PART II. Table Identification (18 points total; 13 minutes total) Answer all three questions.1. What are the data in the table saying? (3 points) Briefly, what is the connection between the data inthe last row of the table and southern income? (3 points)Percentage Decline in Worker-Hours per Capita of Rural Black Population,1870s vs. 1850sSourcelowestimatehighestimateparticipation rate 17 24days / year 8 11hours / day 9 10Cumulative effect 28 37Source: Ransom & Sutch, One Kind of Freedom, Table 3.32. What are the data in the graph saying? (2 points) What is an explanation for the pattern after WorldWar I?(4 points)Department of Economics Spring 2004University of California, Berkeley Economics 113Midterm Examination #2 Page 4 of 6Part II, continued (answer all questions in this part)3. What are the data in the table saying about the role of farm distress in determining bank failures inKansas in the 1920s? (3 points) What are the data in the table saying about the role of depositinsurance in determining bank failures? (3 points)Determinants of Bank Failure (partial regression results)standard errors in parenthesesindependent variablesResults for counties withat least 5 banks, definingfailure to includechoosing to liquidate%) value per acre offarmland & buildings-0.41(0.15)% of state banks withdeposit insurance0.11(0.06)Source: Wheelock, “Regulation and Bank Failures,” Table 2.Part III. Using Economic Models and Concepts to Explain Historical Events (36 points total; 27 minutestotal) Answer all three questions.1. (12 points) Use (and briefly explain) the Keynesian model of the macroeconomy to discuss any oneexplanation for the severity of the Great Depression. 2. (12 points) Use (and briefly explain) the Monetarist model of the macroeconomy to discuss anyone explanation for the severity of the Great Depression. 3. (12 points) Using concepts from the Heckscher-Ohlin and Solow models, and the table below,explain why incomes in the Pacific Coast (PC) region and in the Mid-Atlantic (MA) region wereabove the national average in 1900.Explaining differences in regional income, 1900actual %differencebetweenregion &U.S. Y/L% difference betweenregion & U.S. Y/L whenvary only. . .regionmix ofoutput wagesPC 53.3 9.2 33.6MA 33.8 20.7 5.4Source: Kim, “Economic Integration and Convergence,” Table 1.Department of Economics Spring 2004University of California, Berkeley Economics 113Midterm Examination #2 Page 5 of 6PART IV. Short Essay Question (22 points total; 15 minutes total)Answer one of the following two questions. The questions have the same introduction – and the same introas in midterm #1 – but differ. Base your answers on lecture, discussion section, and the assigned reading. Complete answers will draw from all three sources. 1. (TOPICS: BANKING & EDUCATION) TheSolow growth model is based on the productionfunction Y = A@F(K, L). Economic historiansoften use the production function Y = A@F(K, L,T) instead. There are two types of economicgrowth: extensive growth (increases in thequantities of inputs) and intensive growth(increases in productivity). The table at the rightindicates the relative roles of extensive andintensive growth in U.S. economic history. Sources of Economic GrowthShare attributable to . . . Labor capital land productivity1840-1860 49 26 10 151870-1930 43 27 4 271940-1990 41 14 0 45Source: Walton & Rockoff, Table 1-10.a. (10 points) The National Bank Acts of the 1860sprovided intensive growth to the U.S. economy. What feature(s) of the National Bank Actsincreased total factor productivity, A? Explainthe history: what historical factors led to passageof the National Bank Acts? Explain theeconomics: how did passage of the NationalBank Acts increase productivity?b. (6 points) Increases in educational attainmentalso provided intensive growth to the U.S.economy. Describe the pattern of change insecondary (high school) enrollment andgraduation rates, 1900-1935. Using the table atright, what role did immigration play indetermining the variation between states in highschool graduation rates in 1928? What roles didaccumulation and distribution of wealth play?c. (6 points) Consider this counterfactual: Supposethat instead of public funding, all secondaryeducation in the early twentieth century had beenprivately funded by students and their parents. Use this counterfactual to speculate as to theeffect of public funding of secondary educationon economic growth. The concepts of publicgoods and/or positive externalities should bepart of your answer.Determinants of High School Graduation Rates, 1928(standard errors in parentheses)log per capita wealth 0.852(0.37)% population $65 yrs old 1.423(0.79)% labor force in manufacturing -0.144(0.097)% population Catholic -0.377(0.09)Auto registrations per capita 0.0568(0.02)South (0/1 dummy variable) -0.0935(0.03)New England (0/1 dummyvariable)0.100(0.03)Constant -0.468(0.27)R20.874n48Source: Goldin & Katz, “Human Capital and Social