History 479B

Devine

Fall 2012

Wells, American Capitalism, Chapter 2

1. According to Phillips, why did inflation go up when unemployment went down (and vice versa)? What was “friction” and what role did it play? Why did Keynesians see unemployment as a bigger problem than inflation?

2. How did Keynesian reformers use the Cold War to justify increases in government spending for the general good? Why did they think the U.S. would fall behind the Soviets economically if such spending were not increased?

3. During the first years of the Kennedy administration, what fiscal and monetary policies helped fuel economic growth?

4. If you were trying to control inflation and productivity was rising at 3 percent per year, how much could wages rise per year without fueling inflation?

5. What arguments did President Kennedy make for a tax cut? What results did the tax cut produce once it went into effect in 1964?

6. What were the pros and cons of government-funded health care programs like Medicare and Medicaid?

7. What steps did the government and the private sector take to fuel the “go-go” stock market of the 1960s?

8. What are “conglomerates”? What were some of the factors that led to the formation of more conglomerates after World War II? What advantages did conglomerates offer for businessmen? Why did the “conglomerate craze” of the 1960s end badly?

9. What was new about McDonald’s business model? How did this model help to fuel the expansion of the service sector of the economy? Why does Wells say McDonald’s “represented a symbiotic fusion between big and small business”?

10. Why did the escalation of the Vietnam War doom the “New Economics”? Why did President Johnson choose to ignore the looming fiscal crisis?

11. Why were dollars flowing out of the U.S. in huge quantities in 1968? Why was there also a run on gold? What steps did Johnson take to avoid the outbreak of a financial panic?

12. How did the monetarists’ ideas differ from the Keynesians’? Why did monetarist ideas become more widely accepted than Keynesianism by the late 1960s?

13. Why did Milton Friedman believe the Phillips curve was “not only wrong but dangerous” (p. 76)? In other words, why was tolerating (or even fueling) inflation so as to insure low unemployment a bad idea?

14. What policies did Nixon pursue to slow the economy during the early days of his administration? Why did he hesitate to provide stimulus to the economy?

15. How did labor unions contribute to furthering inflation?

16. What were the major elements of Nixon’s “New Economic Policy”?

Wells, American Capitalism, Chapter 3

1. If the economy is producing at full capacity but demand still increases, what results inflation or deflation? Why?

2. Why did Nixon’s economic advisors believe that price controls were a bad idea in 1973? Why did they say such controls would “translate inflation into shortage”?

3. Why didn’t President Nixon listen to his economic advisors when they told him not to impose price controls? Why did he eventually repeal these controls?

4. If interest rates remain the same even as the demand for loans increases, will there be more or less money in circulation?

5. What factors (political and economic) contributed to the increases in oil prices after 1970?

6. What impact did increasing oil prices have on the US economy? Why did high oil prices limit economic growth?

7. During the 1970s, why were many American individuals and businesses willing to take out loans even though interest rates were high?

8. How did the expectation of inflation make it harder to control inflation?

9. Why did the Democrats want to increase federal spending during the mid-1970s? Why did President Ford want to hold the line or reduce federal spending?

10. Why were Western banks in a good position to finance loans to developing countries during the oil crisis of the 1970s? Why were these banks’ loans to developing countries potentially dangerous? [see p. 98]

11. Why did developing countries prefer loans from private banks to loans from international organizations like the IMF?

12. What were the pros and cons of the increase in government regulations during the 1970s?

13. During times of high inflation, why were borrowers willing to pay steep interest rates? How could the Federal Reserve have controlled inflation and the expansion of the money supply (though it failed to do so)?

14. Why did putting price controls on domestically produced oil do more harm than good? Despite this, why did President Carter and Congress hesitate to remove the controls?

15. How did Paul Volcker change the Federal Reserve’s approach to curbing inflation?

16. What were the reasons for beginning deregulation during the 1970s? What were the pros and cons of deregulation? Why does Wells believe that in the final analysis deregulation benefited the U.S. economy?