OLD MIDTERM #2 (FALL 2000)PART 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 (8points). Then, briefly discuss the connection between the two terms (4 points). Each answer isworth 12 points total. You should spend about 9 minutes on each question.(1) (a) and (b) “Rational” economicbehavior (2) (a) 1890 Sherman Anti-Trust Act and (b) Extent of mergers after 1890 (3) (a) Occupational discrimination and (b) Pattern of income by nativity, large versus smallcities, Michigan, 1890PART II. Table and Graph Identification (18 points total; 13 minutes total) Answer allthree questions.(1) What are the data in the table saying? (2 points) What is an explanation for the patternshown? (4 points)Specialization IndexAgriculture1870 0.981900 1.041920 1.08 1987 1.25Source: Sukkoo Kim, “EconomicIntegration and Convergence, U.S.Regions, 1840-1987,” NBER WorkingPaper No. 6335, December 1997,Tables 1, 3, 7.(2) What are the data in the table saying? (2 points) What is an explanation for the patternshown? (4 points)New Urban Housing Starts(thousands)1921 359 1926 6811922 574 1927 6431923 698 1928 5941924 716 1929 4001925 752Source: Historical Statistics, Series N162.(3) What are the data in the table saying? (2 points) What is an explanation for the patternshown? (4 points)Representation Ratios for BroadOccupational Categories, Males only, 1940Domestic Service 1880.3Laborers 396.2Craftsmen, foremen, etc. 42.8Professional, semiprofessional 36.7Source: Sundstrom, William, “Racial Discrimination inLabor Markets,” Table 2.Part III. Using Economic Models and Concepts to Explain Historical Events (36 points total; 27 minutes total) Answer all three questions.(1) (12 points) Use an economic model to explain why labor scarcity led to the developmentof a machine tool industry. If appropriate, supplement your explanation with a graph.(2) (12 points) Use the concept of externality to explain why the government subsidizedrailroad construction firms in the 1800s. Why was the subsidy in the form of land grants?(3) (12 points) Use the equation GDP = C + I + G + NX to account for the sources of declinein the economy, 1929 - 1933. What is any one explanation of the cause of severe declinein the economy?PART IV. Short Essay Question (22 points total; 17 minutes total)Answer one of the following two questions. Base your answers on lecture, discussion section,and the assigned reading. Complete answers will draw from all three sources. (1) This question considers the connections betweenimmigration, changes in the labor force, andeducation.a) (8 points) Describe the patterns of immigration,1880 - 1920: countries of origin of immigrants,declared occupations, and extent of populationgrowth attributable to immigration. Describechanges in the shares of the labor force inagriculture, manufacturing, and services over thesame period. b) (2 points) Why did the share of high schoolgraduates who went on to graduate from collegedecline between 1900 and 1935?Claudia Goldin and Larry Katz studied state support forhigher education in the early twentieth century. Theireconometric results are reprinted at right. c) (2 points) Interpret the coefficient on the dummyvariable for the South. d) (10 points) Drawing on their article and using theeconometric results, explain why and to whatextent immigration affected state support for publiccolleges and universities. Explain why and to whatextent changes in the manufacturing labor forceaffected state support for public colleges anduniversities. Table 9. Determinants of State Support forHigher Education, 1929(standard errors in parentheses)Log of (Gov’tspending onhigher educationper capita)% labor force in mining 2.38(1.62)% labor force inagriculture1.45(0.79)% labor force inmanufacturing3.05(1.47)% population Catholic -.628(0.54)Log (auto registrations percapita)1.06(0.27)Private college enroll-ment per 1000 residents-0.258(0.095)West (0/1 dummyvariable)0.782(0.24)South (0/1 dummyvariable)0.667(0.23)East North Central (0/1dummy variable)0.386(0.20)Constant -0.115(1.76)R20.798n 48Source: Goldin & Katz, “Shaping of Higher Education,”Table 2.(2) This question considers agriculture, banking, andbank failures.a) (5 points) Using appropriate economic concepts,explain why virtually all farms became mechanizedonce the process of mechanization began. Whatwas the impact of increased mechanization on laborproductivity? On land productivity?b) (4 points) Answer each of the following questionswith one sentence each (four sentences total). Whatis a “national bank” and what is a “state bank”? How did the National Bank Acts of the 1860seliminate almost all state banks in the late 1860s?Why did the number of state banks begin risingagain in the 1870s? By 1913, what was theapproximate ratio of the number of state banks inthe U.S. to the number of national banks?c) (1 point) One well-known feature of the GreatDepression is the large number of bank failures.When did banks in the U.S. begin failing?David Wheelock studied bank failures in Kansas. Hiseconometric results are reprinted at right. A wave ofagricultural mechanization after 1913 had been financedlargely by state bank loans, but agricultural pricesdeclined in the 1920s below their 1913 level leadingmany farmers to default on their loans.d) (12 points) Drawing on his article and using theeconometric results, explain why and to what extentagricultural distress affected bank failures inKansas. Explain why and to what extentcompetition between state and national banksaffected bank failures in Kansas. Explain why andto what extent deposit insurance affected bankfailures in Kansas. Determinants of Bank Failure(standard errors in parentheses)All Banksconstant -0.15(0.11)%) value per acre offarmland & buildings()VALUE)-0.35**(0.18)% ) total farm acreage()LAND)-0.12(0.29)% of state banks withdeposit insurance (RATIO)0.13**(0.07)% ) county’s population,1920-1930 ()POP)-0.23**(0.13)# banks per person(BANKPOP)-0.22(0.61)% of total banks that werenational banks(NATIONAL)0.36**(0.18)Source: Wheelock, “Regulation and Bank Failures,” Tables1 and 2 , Equa tions 1.1, 2 .1, 1. 2, and 2.2, respectivel