Growth of the American Economy ECONOMICS 3622 01 DR JOE CALHOUN SPRING SEMESTER 2015 Exam 1 Study Guide Chapters 1 2 7 8 15 s 1 2 Chapter 1 1 Why should you study American economic history The skills developed in studying economic history critically analyzing the economic record drawing conclusions from it based on economic theory and writing up the results in clear English are valuable skills in many lines of everyday work Walton Rockoff See Black Sanders and Taylor 2003 The Economic Reward for Studying Economics The longer back you look the farther into the future you can see Winston Churchill 1956 The best short answer is to better prepare you for the future Economic history provides you with a clear perspective on the forces of change and a good understanding of the lessons of the past The study of economic history also provides lessons on nation building and ways to analyze policies and institutions that affect the nation as well as you personally Walton Rockoff Economics does not furnish a body of settled conclusions immediately applicable to policy It is a method rather than a doctrine an apparatus of the mind a technique of thinking which helps its possessor to draw correct conclusions John M Keynes 2 What are the 5 key principles of economic reasoning Five propositions for economic reasoning 1 People choose and individual choices are the source of social outcomes 2 Choices impose costs 3 Incentives matter 4 Institutions matter and the rules of the game influence choices 5 Understanding based on knowledge and evidence imparts value to opinions 3 What are the sources of productivity advances Sources of productivity advances 1 Technology knowledge 2 Specialization and division of labor 3 Economies of scale 4 Organization and resource allocation 5 Human capital education and health 4 What are the institutional arrangements that promote growth and prosperity Institutional determinants 1 Rule of law coupled with limited government and open political participation 2 Rights to private property that are clearly defined and consistently enforced 3 Open competitive markets with the freedom of entry and exit widespread access to capital and information low transaction costs mobile resource inputs and reliable contract enforcement 4 An atmosphere of individual freedom in which education and health are accessible and valued Other notes Douglass North contends that 1750 was a major turning point in human The rate of change is greater today than any previous point in time existence Chapter 2 1 How and why was the English attempt at colonization in North America different from other countries and other colonies They established permanent settlements and growth of them They traded with Latin America They motivated them with owning their own land and having their own religion Labor shortage led to productivity Move people to colonies Primary reason permanent colonization and settlement If permanent colonization was the goal the major obstacle was to move people to the colonies 2 Which were the early colonies in North America Sagadahoc Maine Jamestown Virginia First Englishmen to take serious ventures Humphrey Gilbert Walter Raleigh Gilbert died after two attempts Raleigh s first attempt on Roanoke failed His second attempt with John White failed as the lost colony in 1590 3 What were the early reforms Major reform was property rights Landholdings changed from common rights to private rights Jamestown property rights changes 1 Early settlers were given planter shares 2 Later settlers were given garden plots of their own 3 Management became more local 4 Why would someone immigrate to the New World What were the economic arrangements that allowed for immigration Escape religious problems lots of land Europe packed Came over on Indenture contract Allowed a person to pay for their passage by selling their labor to someone for a specified future period of time Labor shortage strong incentive to work and produce profits from INVESTMENT in newland sepertist 5 Why were farms usually larger in the Southern colonies The geography of the Southern Colonies featured fertile soil hilly coastal plains forests long rivers and swamp areas Climate Mild winters and hot humid summers made it possible to grow crops throughout the year and was ideally suited for plantations The Southern Colonies concentrated on developing plantations that eventually grew cotton tobacco rice sugar cane and indigo a purple dye 6 What were the major economic incentives that caused North America to develop differently than other colonies Investment Projection of large profits Factors of commercial growth in Europe 1 Greater security of persons and property 2 Rapid increase in population no reliance on gold private rights permanent colonization Other Notes Colonies were financial and human disasters Indenture contract Allowed a person to pay for their passage by selling their labor to someone for a specified future period of time Five propositions for economic reasoning 1 People choose and individual choices are the source of social outcomes 2 Choices impose costs 3 Incentives matter 4 Institutions matter and the rules of the game influence choices 5 Understanding based on knowledge and evidence imparts value to opinions Key characteristics of English North American Economies Permanent settlements early emphasis on farming Labor shortage strong incentive to increase labor productivity and freedom of labor market indentured servants usually left first jobs Chapter 7 1 Why were the Articles of Confederation inadequate Unifying rules no real substance or power to federal government Weak federal government had limited ability to negotiate Power to tax left to states Consequences of tax issues Free riding among states Printed money to finance war 2 What are the important economic sections of the Constitution Article I Section 8 Article I Section 10 Bill of Rights Amendment IV Constitutional Amendment XVI 3 How did the Constitution set the framework for growth and development General economic effects from independence 1 US ships excluded from direct trade with British West Indies 2 Spain withdrew privilege of direct trade with Cuba Puerto Rico and Hispaniola 3 Increased trade with French West Indies 4 No more protection under British flag shipping became more risky Relative prices Since the relative price of exports rose the relative price of imports fell Excluded trade with British west indies Cuba and Spain No more protection from