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8.       The movie The Wizard of Oz was made during the Great Depression of the 1930s, but...

8.       The movie The Wizard of Oz was made during the Great Depression of the 1930s, but it describes the financial difficulties of American farmers during the recession of the 1890s.

A.       Identify and explain the causes of the farmers’ troubles during the 1890s. You should use Irving Fisher’s quantity theory of money with your answer.

B.      Explain how the movie’s plot and scenery represented the farmers’ financial problems, as listed and explained in part A.   (note: Please only describe the parts of the movie relevant to this question.)

C.      The Federal Reserve Bank was created in 1912, and received full control over the supply of money. How does the Federal Reserve Bank today address the problems in part A?

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Expert Solution

A.       Identify and explain the causes of the farmers’ troubles during the 1890s. You should use Irving Fisher’s quantity theory of money with your answer

Ans....... end of the 19th century, about a third of Americans worked in agriculture, compared to only about four percent today. After the Civil War, drought, plagues of grasshoppers, boll weevils, rising costs, falling prices, and high interest rates made it increasingly difficult to make a living as a farmer. In the South, one third of all landholdings were operated by tenants. Approximately 75 percent of African American farmers and 25 percent of white farmers tilled land owned by someone else.

Every year, the prices farmers received for their crops seemed to fall. Corn fell from 41 cents a bushel in 1874 to 30 cents by 1897. Farmers made less money planting 24 million acres of cotton in 1894 than they did planting 9 million acres in 1873. Facing high interests rates of upwards of 10 percent a year, many farmers found it impossible to pay off their debts. Farmers who could afford to mechanize their operations and purchase additional land could successfully compete, but smaller, more poorly financed farmers, working on small plots marginal land, struggled to survive.

Many farmers blamed railroad owners, grain elevator operators, land monopolists, commodity futures dealers, mortgage companies, merchants, bankers, and manufacturers of farm equipment for their plight. Many attributed their problems to discriminatory railroad rates, monopoly prices charged for farm machinery and fertilizer, an oppressively high tariff, an unfair tax structure, an inflexible banking system, political corruption, corporations that bought up huge tracks of land. They considered themselves to be subservient to the industrial Northeast, where three-quarters of the nation's industry was located. They criticized a deflationary monetary policy based on the gold standard that benefited bankers and other creditors.

All of these problems were compounded by the fact that increasing productivity in agriculture led to price declines. In the 1870s, 190 million new acres were put under cultivation. By 1880, settlement was moving into the semi-arid plains. At the same time, transportation improvements meant that American farmers faced competitors from Egypt to Australia in the struggle for markets.

The first major rural protest was the Patrons of Husbandry, which was founded in 1867 and had 1.5 million members by 1875. Known as the Granger Movement, these embattled farmers formed buying and selling cooperatives and demanded state regulation of railroad rates and grain elevator fees.

Early in the 1870s the Greenback Party agitated for the issue of paper money, not backed by gold or silver, with the idea that a depreciating currency would make it easier for debtors to meet their obligations.

Another wave of protest grew out of the National Farmers' Alliance and Industrial Union (the Southern Farmers Alliance) formed in Lampedusa County, Texas in 1875, and the Northwestern Farmers' Alliance, founded in Chicago in 1880. By the late 1880s, the cooperative business enterprises set up by the Farmers' Alliances had begun to fail due to inadequate capitalization and mismanagement. By 1890, the Farmers Alliances had begun to enter politics. In 1892 the Alliance formed the Peoples' or Populist Party. Among other things, the Populists financed commodity credit system that would have allowed farmers to store their crop in a federal warehouse to await favorable market prices and meanwhile borrow up to 80 percent of the current market price.

The Populist platform also sought a graduated income tax, public ownership of utilities, the voter initiative and referendum, the eight-hour workday, immigration restrictions, and government control of currency.

In the presidential election of 1892, the Populist candidate, James B. Weaver of Iowa, received more than a million popular votes (8.5 percent of the total) and 22 electoral votes. The Populists also elected 10 representative, 5 senators, and 4 governors, as well as 345 state legislators.

In the words of Irving Fisher, “Other things remaining unchanged, as the quantity of money in circulation increases, the price level also increases in direct proportion and the value of money decreases and vice versa.” If the quantity of money is doubled, the price level will also double and the value of money will be one half. On the other hand, if the quantity of money is reduced by one half, the price level will also be reduced by one half and the value of money will be twice.

Fisher has explained his theory in terms of his equation of exchange:

PT=MV+ M’ V’

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Where P = price level, or 1 IP = the value of money;

M = the total quantity of legal tender money;

V = the velocity of circulation of M;

M’ – the total quantity of credit money;

b-Question) Explain how the movie’s plot and scenery represented the farmers’ financial problems, as listed and explained in part A.   (note: Please only describe the parts of the movie relevant to this question.)

Ans- The Wizard of Oz is a 1939 American musical fantasy film produced by Metro-Goldwyn-Mayer. Widely regarded as one of the greatest films of all time,[5][citation needed] it is the most commercially successful adaptation of L. Frank Baum's 1900 children's fantasy novel The Wonderful Wizard of Oz.[6] Directed primarily by Victor Fleming (who left the production to take over the troubled Gone with the Wind), the film stars Judy Garland as Dorothy Gale alongside Ray Bolger, Jack Haley, Bert Lahr and Margaret Hamilton.

the elements in “The Wizard of Oz” powerfully fill a void that exists inside many children. For kids of a certain age, home is everything, the center of the world. But over the rainbow, dimly guessed at, is the wide earth, fascinating and terrifying. There is a deep fundamental fear that events might conspire to transport the child from the safety of home and strand him far away in a strange land.The Wizard of Oz” has a wonderful surface of comedy and music, special effects and excitement, but we still watch it six decades later because its underlying story penetrates straight to the deepest insecurities of childhood, stirs them and then reassures them. As adults, we love it because it reminds us of a journey we have taken. That is why any adult in control of a child is sooner or later going to suggest a viewing of “The Wizard of Oz.”

C) Question ---

Answer ------The Federal Reserve Bank was created in 1912, and received full control over the supply of money. How does the Federal Reserve Bank today address the problems in part A?

Federal Reserve Act was passed by the 63rd United States Congress and signed in

to law by President Woodrow Wilson on December 23, 1913. The law created the Federal Reserve System, the central banking system of the United States

The money supply and the monetary base are linked by reserves, i.e., vault cash and deposit balances held at Federal Reserve banks. While the Fed's control over the size of the monetary base is complete, its control over the money supply is not.

The Federal Reserve System is the central bank of the U.S. It conducts monetary policy to manage inflation, maximize employment, and stabilize interest rates. The Fed supervises the nation's largest banks and provides financial services to the U.S. government. It also promotes the stability of the financial system.

Although its members are appointed by Congress, its structure makes it independent from political influences.1 That makes it the most powerful single actor in the U.S. economy and thus the world.

Despite being charged with running the printing press for dollar bills, the modern Federal Reserve no longer simply runs new paper bills off of a machine. Some real dollar printing does still occur (with the help of the U.S. Department of the Treasury), but the vast majority of the American money supply is digitally debited and credited to major banks. The real money creation takes place after the banks loan out those new balances to the broader economy.

The Federal Open Market Committee (FOMC) and associated economic advisers meet regularly to assess the U.S. money supply and general economic condition. If it is determined that new money needs to be created, then the Fed targets a certain level of money injection and institutes a corresponding policy.1


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