1. (3 pts) Why was the development of insurance important for economic growth?Insurance for loss at sea allowed more merchants who are willing to share risk and premium to engage in overseas trade. (3 pts) Why did diffusion double-entry bookkeeping facilitate the birth of modern industry? 1. Provides a way of measuring financial position of a firm.2. Facilitates “absentee ownership”  allows for larger firms.3. Facilitates evaluation of credit worthiness  essential for growth in creditmarket(4 pts)Explain the connection between the Scientific Revolution and the Industrial Revolution in Great Britain.1. Earliest inventions of Industrial Revolution drew little from existing scientificknowledge. The early inventors of the IR were “thinkers” not scientists. They frequently had no idea about the scientific principles underlying their inventions. 2. “Trial and error.” Principles of the Scientific Revolution led people to believethat theories needed to be tested, fostered the attitudes for invention.2. (4 pts)Why are the views of Renaissance Christianity (as contrasted with Classical beliefs) thought to have fostered economic growth in the West? God had designed an intricate  world and created Men in his image. This led Renaissance  men to view the world as subject to logical and mechanical forces; fostered the belief that nature was predictable. Therefore, people will seek to manipulate nature for their own benefit.(2 pts each)Provide 3 explanations as to how the Protestant Reformation also increased economic growth. a. Competition among religions. The rise of Protestant religions offered merchants a place to turn. b. Reduction of authority of clergy. Church lost power to restrain economic activity. c. Release of capital belonging to Church to more productive uses. 3. (1/2 point for correctly identifying each school, rounded up; 2 points each for the details) Provide details on each of the four schools of thought about the important characteristics of the Industrial Revolution. A. The Social Change School. This school views the changes in way transactions took place as being most important. 1. The emphasis is on the emergence of formal, competitive, and Impersonal markets in goods and factors of production (labor in particular).2. Adherents of this school stress the substitution of competition for medieval regulations which had previously controlled the production and distribution ofwealth.B. The Industrial Organization School. This school emphasizes the rise of the factory system. This school believes the most significant changes were in the emergence of large firms, mills, mines, railroads, and even large retail stores in which workers were concentrated under one roof, subject to discipline and quality control. Part of this interpretation is the view that the IR marked a shift from circulating capital to fixed capital. C. The Macroeconomic School. Influenced by the work of Simon Kuznets, this school emphasizes changes in aggregate variables such as the growth of national income, the rate of capital formation or aggregate investment ratios, or the growth and composition of the labor force.D. The Technological School. This school considers changes in technology to be primary to all other changes and focuses on invention and the diffusion of technical knowledge. Technology includes organization of labor, consumer manipulation, marketing, and distribution techniques.4. Explain the importance of the following innovations to British industrialization: the (4 pts) Newcomen steam pump / Watt Steam Engine and (3 pts) Henry Court’s puddlingand rolling process. (3 pts) Explain how innovations in industrial organization led to increased productivity in the ceramics industry.3. The Ceramics industry. Most improvement was from changes in organization of production and not power machinery. Productivity and specialization and the division of labor. They were able to benefit from better utilization of labor by skill. Unskilled labor could do the grinding and mixing allowing high skilled workers to concentrate on shaping, designing, and glazing. Eventually inanimate was applied to the grinding and mixing process. But, gains came from a new division of labor vs. A single artisan doing all parts of the process. …..meixiewan5. (4 pts)Explain the Putting out system (cottage industry). (3 pts)List and generally describe 3 of the labor-saving innovations in cotton textile production that revolutionized this industry during the 18th century. (3 pts) What was the impact of these inventions on the cottage industry?c greater output and issue prices in the cotton industry home based factory system6. (2 pts) In the Dual Economy Model, what industries would be included in the traditionalsector? (2 pts) What industries would be in the modern sector? (2 pts) About what share of the British Economy was engaged in the modern sector in 1760? (2 pts) What were the estimated productivity growth rates in each sector? (2 pts) Why did growth in National Income lag that of increased productivity in the modern sector?1) Traditional sector contained agriculture, construction, domestic industry and many trades.Modern sector contained Innovative and fast-growing industries like cotton textiles, iron smelting and refining, mining and ceramics.2) Modern sector: 10%Productivity growth rates in Traditional sector: 0.6% per annumProductivity growth rates in Modern sector: 1.8% per annum3) Since it only represented a small share of the aggregate economic activity, it had little impact on the aggregate growth rate. Abrupt changes in the growth of the aggregate economy in this dual sector model would be a mathematical impossibility. The small size ofthe modern sector prevents even phenomenal growth rates from having a large impact on the overall economy.7. (6 pts)What are the 3 prongs in Joel Mokyr’s theory of the “growing up” of the economy? 3 prongs:1. A small sector of the economy underwent quite rapid and dramatic technological change.2. This sector grew at a rate much faster than the traditional sector so that its share of the overall economy increased.3. The technological changes in the modern sector gradually penetrated the traditional sector so that it too became modernized (4 pts)How is this theory consistent with the estimated growth and productivity rates for Great Britain in the eighteenth and nineteenth centuries?Estimated Annual Rates of British