Question 1

What innovation did the Federal Housing Administration develop that helped make mortgage loans more accessible?

Accepted Answer

The Federal Housing Administration (FHA) introduced the 30-year, fixed-rate mortgage, which became a standard in the housing industry. This innovation made home loans more affordable and accessible to a broader segment of the American population by spreading payments over a longer period, thereby reducing monthly payments.

Question 2

In the period following World War II, the US Treasury was in charge of monetary policy and instructed the Federal Reserve to

Accepted Answer

During the period following World War II, the US Treasury directed the Federal Reserve to maintain low interest rates. This policy aimed to facilitate government borrowing at low costs to finance post-war recovery and support economic growth, rather than focusing on high savings or directly targeting employment for returning veterans.

Question 3

In the early twentieth century, which of the following US industries were dominated by trusts?

Accepted Answer

Steel, railroads, and banking industries were notably dominated by trusts in the early twentieth century, with figures like Andrew Carnegie in steel and J.P. Morgan in banking and railroads playing pivotal roles in their consolidation.

Question 4

During World War II, the US government financed the dramatic increase in wartime spending by

Accepted Answer

The US government financed the dramatic increase in wartime spending during World War II by both increasing tax rates to raise revenue directly from the population and selling war bonds to borrow money from the public, which would be repaid with interest after the war.

Question 5

During World War I, the cost of living in the United States shot up 62%. Using more effective economic measures, the cost of living in the United States during World War II, from 1940 to 1945, increased by what percent?

Accepted Answer

During World War II, from 1940 to 1945, the cost of living in the United States increased by approximately 20%, despite the government's efforts to control inflation through price controls and rationing.

Question 6

During World War II, US policymakers feared inflation would result from the dramatic increase in wartime spending. In order to prevent that inflation, US policymakers

Accepted Answer

During World War II, US policymakers implemented wage and price controls, issued war bonds to absorb excess money, and rationed many commodities to prevent inflation caused by increased wartime spending.

Question 7

Stagflation is the term used for an economy experiencing a combination of

Accepted Answer

Stagflation is characterized by high unemployment and rising rates of inflation, a situation that poses a dilemma for economic policy since measures to reduce inflation may exacerbate unemployment, and vice versa.

Question 8

One of the major reasons that the western European economies prospered following World War II was the

Accepted Answer

The elimination of trade barriers between western European nations facilitated increased trade and economic cooperation, contributing significantly to the prosperity of these economies after World War II.

Question 9

Initially, the US Federal Reserve was created by Congress for what primary function?

Accepted Answer

The primary function for which the US Federal Reserve was created by Congress was to serve as a lender of last resort. This was in response to financial panics and bank runs, to provide banks with liquidity in times of financial distress.

Question 10

One of the things that made the Savings & Loans eager to lend money for home mortgages was the existence of the

Accepted Answer

The answer of One of the things that made the...

Question 11

In order to fund World War II, the United States followed the policy prescription of

Accepted Answer

John Maynard Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression. During World War II, the United States adopted Keynesian economics to fund the war effort, significantly increasing government spending.

Question 12

How did business firms respond to the stock market crash of 1929 and the subsequent Depression?

Accepted Answer

In response to the stock market crash of 1929 and the subsequent Depression, business firms generally cut prices in an attempt to stimulate sales. When this strategy did not succeed, they reduced their borrowing from banks, reflecting a broader strategy to decrease expenses and liabilities in a time of economic downturn.

Question 13

Which of these statements was an argument for the elimination of trade barriers between various European nations after WWII?

Accepted Answer

Economic sanctions and trade barriers after WWI had indeed contributed to the economic and political instability in Europe, leading to the rise of extremist movements and ultimately WWII. After WWII, European nations sought to avoid repeating these mistakes by promoting economic cooperation and integration, which included the elimination of trade barriers to foster economic recovery and stability.

Question 14

The ownership structures previously called trusts are more commonly known today by what name?

Accepted Answer

Trusts are early forms of business combinations that consolidated power and reduced competition, which is essentially what monopolies aim to achieve today.

Question 15

The Panic of 1907 was triggered by

Accepted Answer

The Panic of 1907 was largely caused by excessive speculation in the stock market, overly generous lending practices by banks and trusts, and insufficient regulatory oversight of financial markets. These factors combined to create a fragile financial environment that ultimately led to a crisis.

Question 16

Low nominal interest rates can indicate

Accepted Answer

Low nominal interest rates can indicate either a sufficient money supply, as central banks may lower rates to encourage borrowing and spending, or an economy suffering from deflation, where prices are falling and central banks lower rates to stimulate demand.

Question 17

In the early twentieth century, the business scene in America was transformed by the formation of trusts. Business trusts are __________ integrated ownership structures.

Accepted Answer

Trusts in the early twentieth century were often horizontally integrated, meaning they combined many firms in the same industry to reduce competition and control prices.

Question 18

What was the primary lesson learned from the Panic of 1907?

Accepted Answer

The Panic of 1907 highlighted the need for a central bank to act as a lender of last resort and for more robust laws and regulations governing banking practices, leading to the creation of the Federal Reserve System in 1913.

Question 19

In a 2003 analysis of the Federal Reserve's role in the stock market collapse in October of 1929, Allan Meltzer concluded that the

Accepted Answer

Allan Meltzer concluded that the Federal Reserve followed the wrong policy doctrine, which contributed to the onset of the Great Depression, rather than mitigating its effects.

Question 20

Under the Burgess-Riefler doctrine, a low level of bank borrowing and low nominal interest rates were considered to be evidence of __________ monetary policy.

Accepted Answer

The Burgess-Riefler doctrine posits that a low level of bank borrowing and low nominal interest rates indicate an easy (or expansionary) monetary policy, as these conditions suggest that banks can easily obtain funds, often leading to increased lending and economic activity.

Quiz 5: Financial Markets Through Time