Deck 23: “Normalcy”: 1919–1929

Question 1

Buying securities on the margin requires people interested in buying stocks to pay only a percentage (a margin)of the actual purchase price.The rest is borrowed from someone else,usually an investor's broker.

Answer 1

True

Question 2

In September 1929,Roger Babson predicted the collapse of the stock market.

Answer 2

True

Question 3

A federal surplus is deflationary when all else is held constant.

Answer 3

True

Question 4

After 1926,a decline in total building construction occurred even though building costs remained fairly stable.

Question 5

The stock market boom in 1922-1929 seems "rational" enough if you take into account the expansion of the money supply in the same period.

Question 6

The evidence of building costs in the 1920s shows that the decline in total construction after 1926

A) reflected the sharp increase in costs as the boom gathered strength.
B) occurred when building costs remained stable.
C) occurred in the presence of sharply falling costs that anticipated the 1929 crash.
D) was a result of the contractionary monetary policies of the Fed.

Question 7

The Capper-Volstead Act of 1922 applied the Sherman Anti-Trust Act to farm cooperatives,preventing them from restricting output and fixing prices.

Question 8

The decline in wholesale and consumer prices in 1929-30 was not as large as had been the decline?in 1920-21.

Question 9

Installment-plan buying permits consumers to use the income generated from their private assets to pay for goods and services.

Question 10

Income distribution moved toward greater inequality in the 1920s after World War I (1914-18)had witnessed a movement toward greater equality.

Question 11

Even in 1928,non-bank sources provided more funds for brokers' loans in the stock market than did the nation's banks.

Question 12

Regarding the stock market crash of 1929,evidence shows that

A) no one expected trouble in the stock market before the October 1929 crash.
B) there was doubt about the speculative heights of stock prices as they continued to ?rise and more money continued to pour into the market.
C) only active support by the New York Federal Reserve Bank during the summer and ?fall of 1929 enabled the bull market to last until October.
D) investment trusts and nonbanking money sources correctly anticipated the downturn.

Question 13

During the decade of the 1920s,the distribution of income

A) became increasingly equal.
B) changed little or not at all.
C) became increasingly unequal.
D) may or may not have changed, but it is difficult to know because of lack of data.

Question 14

A decrease in the demand for unskilled and skilled labor was a secondary effect of the productive use of fractional horsepower and internal combustion engines.

Question 15

Unlike the 1920-21 episode,1929-30 farm prices stood up fairly well when other prices fell.

Question 16

The stock market collapse of 1929 might have been averted had large corporations maintained their participation in the market for securities loans in 1925-1929.

Question 17

Electricity and internal combustion engines are general-purpose technologies.They permit the functioning of a wide range of goods,service and production systems.

Question 18

Wartime mobilization during World War I raised the shares of income going to labor.This increase continued through the 1920s.

Question 19

Economic prosperity returned under the New Deal programs of the 1930s.

Question 20

Farm prices fell sharply in 1919-21.Then,until 1929,the farm "terms of trade" (the movement of farm prices relative to the movement of non-farm prices)

A) collapsed by more than half.
B) remained essentially unchanged.
C) actually rose.
D) collapsed, but only slightly.

Question 21

Holding all else constant,when interest rates fall,

A) yields on common stocks rise above yields on bonds.
B) yields on common stocks fall below yields on bonds.
C) yields on common stocks and bonds rise at an equal rate.
D) yields on common stocks and bonds fall at an equal rate.

Question 22

What did the growing inequality of income during the 1920s indicate?

A) That consumption expenditures would tend to weaken even though total income continued to rise
B) That spending for goods and business incentives to produce those goods became increasingly dependent on the wealthy
C) That the economy became more vulnerable to any shock, such as a stock market crash, that reduced the willingness of the wealthy to buy goods
D) All of the above

Question 23

The decade of the 1920s was characterized by which of the following?

A) Economic advancements in agriculture
B) A decrease in the inequality of income and wealth
C) Consumers dramatically shifted their household demands into ?purchases of durable goods on credit
D) All of the above characterized the decade of the 1920s

Question 24

When the federal government makes no attempt to take corrective action,markets return a recessed economy to full employment levels of production by

A) laying off workers.
B) lowering wages.
C) dropping prices.
D) doing all of the above.

Question 25

What did automobiles and government subsidized highways increase the net benefits of?

A) Investing privately in highway development
B) Rapid expansion of new cities and towns and revitalization ?in old cities and towns
C) Development of suburban and exurban areas
D) All of the above

Question 26

In answer to the question,"Could they see the Great Depression coming?",Hughes and Cain (2011)respond:

A) No-Many people firmly believed that markets would self-correct and eventually recover with no government intervention
B) No-many people seemed to believe that the prosperity of the 1920s would continue ?indefinitely because they believed that the economy was built to sustain high and stable ?rates of growth with minimal cyclical fluctuation when markets were permitted to clear themselves without government interference.
C) Yes-in the late 1920s, a majority of economists reported and publicized that the economy?was becoming dangerously unbalanced and that a serious downturn was near.
D) Yes and no-by the late 1920s, the economics profession was about equally split on the possibility of a serious downturn in the near future.

Question 27

Which of the following entities was blamed in part for the speculative activity leading to the crash?of 1929?

A) Large manufacturing enterprises
B) Brokers and their firms who extended loans to customers interested in ?buying stocks on the margin
C) The Federal Reserve System
D) New mom and pop businesses

Question 28

A secondary effect of installment credit was the

A) development of a new market in used durables.
B) emergence of a new network of dependable supplies of electric power.
C) surge in prices.
D) increased government intervention in household activity.

Question 29

Between 1921 and 1929,general prices as measured by wholesale or consumer prices

A) were stable overall.
B) fell dramatically.
C) increased moderately.
D) increased significantly.

Question 30

The 1920s is sometimes described as the decade representing the emergence of "mass society."?This refers to developments in all of the following except

A) Production methods and communication systems
B) Consumption patterns and installment credit
C) Attitudes and culture
D) There is no "except"; all of the above are part of the emergence of "mass society"

Question 31

The federal government's fiscal policy (taxing and spending policy)during the 1920s was ?one in which

A) the federal budget was in surplus every year.
B) the federal budget exerted a mildly deflationary impact on the economy, ?tending to slow overall spending in the economy.
C) Parkinson's third law, "expenditures rise to meet income," ?seemed to hold for the federal government.
D) all of the above applied.

Question 32

Why was the stock market crash of 1929 a disaster for the economy?

A) Through the "wealth effect," investors lost paper wealth and consequently ?reduced their spending on goods and services. This led to cutbacks in ?production and jobs.
B) Businessmen became pessimistic about the future and reduced spending on ?plants and equipment, thus causing reduced production and increased layoffs ?in the capital-goods sector of the economy.
C) The crash revealed a flawed structure of credit and weak system of banks ?and other financial institutions in the U.S.
D) All of the above are correct

Question 33

During the decade of the 1920s,the U.S.economy

A) was generally healthy and gave no indication of the troubles that lay ahead regarding ?the Great Depression.
B) was relatively stagnant in terms of growth of total output with small declines in agriculture ?and housing, which suggested that difficult times might lie ahead in the 1930s.
C) experienced actual declines in overall production levels, including agriculture and housing, which suggested that even more difficult times probably lay ahead.
D) experienced relatively rapid growth in overall output but in the late 1920s nevertheless ?showed weaknesses in certain sectors such as agriculture, housing and the financial ?sector, which suggested the possibility of difficult times ahead.

Question 34

Some researchers argue that the overall standard of living increased during the 1920s.In general,holding constant all other factors that might impact it,economists are careful about connecting an increase in the standard of living to

A) increases in the amount of labor used in production processes.
B) new inventions being made in research laboratories.
C) increases in the output of goods and services per worker.
D) the discovery of new sources of gold and silver.

Question 35

The stock market boom of the 1920s occurred in part because the demand for stocks increased.?The source of this demand increase originated from whom?

A) Ordinary workers who experienced rising wages and now had incentive to invest in the stock market, thus driving up stock prices.
B) The people in the upper income strata; they received a high percentage of the increase in realized income during the 1920s and invested much of it in the stock market.
C) Farmers who, finding agriculture increasingly unprofitable, began investing in the stock market rather than in farm land and equipment.
D) Foreign investors who were optimistic about America's future and accordingly invested in American stocks.

Question 36

The economist John Kenneth Galbraith (1979)lists several major sources of weakness in the economy that laid the groundwork for the collapse of the 1930s.These sources include all ?of the following except

A) A weak banking structure
B) Ignorance of the economy's problems by the nation's leaders
C) An overgrown federal bureaucracy with extensive regulation of the private economy
D) An increasingly unequal distribution of income

Question 37

What is/are the lesson(s)learned from the stock market crash of 1929?

A) Statements and opinions of federal officials can and do impact consumer and business optimism and pessimism regarding stocks and other financial markets, leading to volatile buying and selling behaviors.
B) Portfolio diversification is important.
C) One segment of the aggregate market economy can experience events that impact the economy?as a whole.
D) Reflection, analysis and evaluation are often required to understand why an event occurred and what can be done to prevent it from happening in the future.

Question 38

During the years prior to the Great Depression (the 1920s),farmers were

A) experiencing an increase in the value of farm output.
B) enjoying rising incomes and prosperity in spite of interest charges and taxes on real estate.
C) experiencing stagnant incomes.
D) experiencing declining incomes and hard times.

Question 39

Between the 1921 recession and 1929,the U.S.economy was described as healthy.Which of the following changes in economic indicators is correctly stated and supports this claim?

A) Real Gross Domestic Product (RGDP) increased per capita
B) There were increases in real income but they were more ?unequally distributed
C) Consumer spending on credit increased dramatically
D) There was a decline in total building construction

Question 40

The stage of industrial development during the early part of the 20th century is usually referred to ?as Fordism.The characteristics of this system include all of the following except

A) Moving assembly-line production
B) Mass production of relatively inexpensive consumer goods
C) The extensive use of skilled labor to produce complex consumer goods
D) Consumer durable goods purchased on installment credit

Question 41

Discuss Lampman's (1962)and Williamson and Lindert's (1981)research on patterns of income and wealth distribution from colonial times to 1932.

Question 42

Define the business cycle.Compare the length,depth and breadth of the business cycle in an economy where people are left in control of their own resources to that business cycle where the government attempts to buffer upticks in unemployment,subdue decreases in wages and protect against the loss of production.

Question 43

Explain why some groups believed that the social benefits of national Prohibition were less than the costs.In your explanation,mention the unintended consequences of Prohibition.

Question 44

Discuss the relationships among (i)increases in real wages,(ii)installment payment plans and?(iii)financial intermediation.

Question 45

Explain why people buy stocks.Identify the factors that influence common stock purchases.Identify the sources of the increase in demand for stock and explain the 226 percent rise in the 1929 common stock index over the 1920 index.

Question 46

According to Galbraith (1979),there were five major signs that the economy was dangerously unhealthy in the 1920s.What were they? Do other economists agree with Galbraith? Why or ?why not?

Question 47

On the surface,perhaps,the decade of the 1920s appears to be one of the healthiest periods of economic growth and general prosperity in U.S.history.However,in retrospect,several weaknesses or unhealthy developments were evident.These negative developments contributed to the economic collapse of the 1930s.List and describe them.

Question 48

During the 1920s,what changes in the demand for and supply of building construction signaled that times of economic distress could be ahead?

Question 49

Describe the new type of consumption spending that surfaced in the 1920s.How was some of it financed?

Question 50

The legislative immigration restrictions following World War I (1914-18)contributed to which of the following in the 1920s?

A) An acceleration in the growth in the U.S. population
B) A decline in the rate of household formation in the U.S.
C) Rapid rise in U.S. prices
D) High unemployment in the U.S.

Question 51

In terms of changes in real Gross National Product (GNP),prices,unemployment and income distribution,compare and contrast the 1929-1930 and 1920-1921 economic contractions.How did the 1929-1930 collapse distinguish itself from the 1920-1921 recession?