Principles of Macroeconomics: Study Guide

Topics: Monetary policy, Federal Reserve System, Economics Pages: 30 (6146 words) Published: March 29, 2013
Chapter 3:

Second industrial Revolution:

-many believe began with Bessemer steel process

-firms grew, with this came market power

-rising concern over monopolies let to anti-trust legislation

-worried that Malthus’s economic prediction might come true-that growth would explode, leading to more-thinly spread resources (food) among starving and dying population

(appendix 20.1)-the classical(malthusian) growth model

-from 1860-1890: real wages for manufacturing employees increased by 50% or 1.36% per year

-wages in building increased by 60% or 1.58% per year

-average real wages in manufacturing grew despite rapid-growth in less-skilled,less-literate immigration from southern to eastern Europe between 1890-1914

-increased supply of labor from immigration depressed manufacturing wages, but the rising factory-driven demand for labor prevailed

-these increases in living standards occurred during a period of laissez-faire capitalism, aided by free trade and lack of gov. control

-consumers enjoyed a greater selection of goods and services

Sources for economic growth and increases in living standards

-Appendix 20 Models of Economic Growth

-physical capital includes the tools, machinery, and other resources workers use to produce goods and services

-human capital includes the skills and knowledge, or education, of workers

-technological advance occurs when society has discovered a better or more efficient way to produce

-most common example of this is the assembly line, where workers specialize in specific tasks

-economists agree that physical and human capital face diminishing marginal returns, meaning additional units of them yield smaller increases in output

Physical and Human Capital over the Industrial Revolution:

-during 2nd revolution, industry moved from an agriculturally based economy to an industrial-based one

-factories began employing large numbers of workers, and in 1860, nearly 1 out of 4 Americans worked in manufacturing, while in 1900 this increased to 1 out of 2 workers

-in the south, most sharecroppers after the civil war were black, had little opportunity, and continued living on plantation owners’ lands in exchange for shares of crop they grew

-society became more educated as some state governments increased funding for public schools and levied taxes to fund textbooks

-Morrill Act of 1862-provides grants of public lands to states to support education, and the Hatch Act of 1887-provided federal funding for state land-grant colleges to create agricultural experiment stations, which researched soil, minerals and plant growth

Technological Advance over the Industrial Revolution:

-technological advance was the most important factor that contributed to long-run economic growth

-include new inventions or innovations that lead to better or more efficient production methods

-the Bessemer process led to the mass production of steel by blowing cold air on red, hot iron to purify it by burning off carbon deposits

-as this process lowered the cost of steel production, railways expanded outward and skyscrapers grew upward

-the first skyscraper, the Home Insurance Company built in Chicago in 1884, was 10 stories high and was not possible without the advent of steel

Technological Advancement’s Effect on Real Wages:

-Taylor’s ideas flourished in the Second Revolution, as firms hired efficiency experts from across the country

-experts promoted the use of time clocks and breaks, and tied rewards to productivity

-many also found that piece-rate pay increased worker productivity

-unmonitored, hourly-rate workers had the incentive to work more slowly, but salaried workers had the incentive to shirk because piece-rate pay paid each worker for only for each specific quality item produced—so monitoring workers became less important

-Henry Ford perfected Taylor’s scientific management principles through hos assembly line...
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