Understanding Economics

Lesson 6: The Economics of Booms and Busts

Please read The Boom/Bust Cycle
and Land Rent & Selling Price .

1. According to Henry George           | Text |

a. depressions can be caused either by overconsumption or overproduction.
b. depressions will tend to become less severe as material progress goes on.
c. the root cause of depressions is speculation in things that are not the products of labor.
d. the problem of industrial depressions is independent of the general problem of poverty.
2. When too much of a particular commodity is produced,           | Text | Supplement |

a. Unemployment increases.
b. its price falls and people have more to spend on other goods.
c. the value of land falls.
d. other goods will also be over-produced, in a chain reaction.
e. its price rises and people have less to spend on other goods.
3. What facts show us that recessions cannot be caused by general overproduction or overconsumption?           | Text |

4. What three processes contribute to restoring production after a period of recession or depression? Must these processes function concurrently?           | Text |

5. Briefly explain the process of capitalizing land's rental value into a selling price. Why are land prices generally higher than the capitalized value of current rent?           | Supplement |

6. What incentives lead to a larger, more costly building than is called for by the current demand for space at a site?           | Supplement |

7. Historically, what kind of economic events have always occurred in the years leading up to major economic slumps?           | Supplement |

8. One way to hold off the recessionary effect of rising speculative land prices is           | Supplement |

a. to abolish the minimum wage.
b. to remove import duties.
c. to cut taxes.
d. to increase the money supply.
e. to establish rent controls.
9. Despite the fact that land is fixed in supply, what processes increase the supply of land available for higher-intensity uses?           | Supplement |

10. How has the process seen in recent real estate cycles differed from Henry George's analysis?           | Supplement |

11. If interest rates are lowered in an attempt to avoid an economic slowdown,           | Supplement |

a. land prices will tend to decrease.
b. more people will default on their mortgages.
c. inflation will decrease, or even stop.
d. all of the above
e. none of the above.
12. The expectation of future increase in land value           | Text |

a. reduces the supply of affordable housing.
b. plays a role in every economic decision in our society.
c. is a component of the selling price of land.
d. is often inaccurate.
e. All of the above.

13. How does the problem of the boom/bust cycle relate to the general problem of poverty?           | Text |