Deck 12: Money and Banking in the Developing Economy

Question 1

Alexander Hamilton argued for a "National Bank" that would

A) provide the increased money supply necessary to accommodate increased business activity.
B) lend money to the U.S. Treasury.
C) serve as fiscal agent for the U.S. government.
D) serve as a tax collection agency for the U.S. government.
E) All of the above.

Answer 1

All of the above.

Question 2

Opponents of the First Bank of the U.S. argued that the bank

A) was unconstitutional.
B) created a "money monopoly."
C) favored northern manufacturing more than southern agriculture.
D) opened the U.S. monetary system to foreign control.
E) All of the above.

Answer 2

All of the above.

Question 3

All of the following means were used to reduce problems associated with the circulation of commercial bank notes except

A) a pledge by the Treasury to accept all bank notes issued by state-chartered banks.
B) anticounterfeiting associations formed by commercial banks.
C) bank note reporters and counterfeit detectors, such as Thompson's Reporter and Hodges' Bank Note Safeguard .
D) note brokers who bought and sold commercial bank notes.

Answer 3

a pledge by the Treasury to accept all bank notes issued by state-chartered banks.

Question 4

Gresham 's Law

A) applies only to bimetalism issues.
B) applies only to monetary issues in general.
C) applies to a wide variety of situations.
D) is only understood after taking graduate-level courses.

Question 5

Under the bimetallic standard of the 19th century,

A) gold was initially valued at about 15 times that of silver.
B) price fluctuations of gold and silver eased the adoption of the system.
C) price fluctuations caused hoarding of undervalued coins.
D) Both a and b are correct.
E) Both a and c are correct.

Question 6

State bank notes usually had a face value that was ______ their market value, while the notes of the First Bank of the U.S. usually had a face value that was ______ their market value.

A) greater than; less than
B) less than; greater than
C) equal to; less than
D) greater than; equal to

Question 7

The dollar volume of state-bank notes received by the First Bank of the United States was __________________ the dollar volume of its bank notes received by the state banks.

A) greater than
B) less than
C) equal to

Question 8

In his Report on a National Bank , _________________ argued in favor of the establishment of a Bank of the United States.

A) Thomas Jefferson
B) Alexander Hamilton
C) George Washington
D) Benjamin Franklin

Question 9

The Bank of the United States did not

A) act as a lender of last resort.
B) help collect customs bonds.
C) carry on foreign exchange operations.
D) hold most of the U.S. Treasury deposits.
E) The Bank of the United States engaged in all of these activities.

Question 10

According to Gresham's Law,

A) inflation and unemployment are inversely related.
B) tax rates and tax revenues are inversely related.
C) bad money drives out good money.
D) inflation is inevitable in the long run.

Question 11

In 1790, there were only three banks in the U.S. By 1811, there were 88. Most of these new banks were

A) created and operated by the federal government.
B) created and operated by state and local governments.
C) private-sector, state-chartered banks.
D) branches of banks with English charters.

Question 12

Under the Coinage Act of 1792

A) gold coins contained more metal than silver coins of the same denomination.
B) silver coins contained more metal than gold coins of the same denomination.
C) gold coins contained about the same amount of metal as silver coins of the same denomination.
D) gold coins were minted only in high denominations and silver coins were minted only in low denominations.

Question 13

Which of the following was not true of the First and Second Banks of the United States?

A) They had branches throughout the country.
B) They issued paper money.
C) They made loans to private individuals.
D) They set the bimetallic ratio.

Question 14

Rolnick and Weber point out that a bimetallic standard will not exhibit Gresham's Law if

A) people are willing to use coins at their market values.
B) people are willing to use coins at their face values.
C) the government regulates the quantity of each type of coin in circulation.
D) paper money circulates along with minted coins.

Question 15

The main determinant of the discount rate on a privately issued bank note was

A) how long the issuing bank had been in operation.
B) who was on the issuing bank's board of directors.
C) the general reputation of the issuing bank.
D) the distance of the issuing bank from the location where the note was being used.

Question 16

The Coinage Act of 1792

A) designated both gold and silver as the monetary standard for the U.S.
B) designated gold as the monetary standard for the U.S.
C) designated silver as the monetary standard for the U.S.
D) designated paper Treasury notes as the monetary standard for the U.S.

Question 17

Under the bimetallic standard of the 19^th century

A) the amount of money in circulation increased.
B) the American dollar served poorly as a unit of account.
C) only one metal tended to circulate as money at any given time.
D) the government earned profits by selling gold.

Question 18

Near the end of the eighteenth century, the dollar

A) was a nickname for the Spanish Peso.
B) was more plentiful than any other coin.
C) was customarily used to reckon accounts.
D) All of the above are correct.

Question 19

Early attempts to establish paper money were hampered by

A) counterfeiting.
B) Constitutional prohibition against states issuing paper money.
C) currency valuations that varied from city to city.
D) All of the above are correct.
E) Only a and c are correct.

Question 20

Thomas Jefferson argued that the U.S. should adopt the Spanish dollar as the official unit of account because

A) so many colonists came from Spanish-speaking nations.
B) it was based on the decimal system.
C) it was less prone to inflation than other units of account.
D) it was the unit of account used in most European countries.

Question 21

What is typically not considered a characteristic of a central bank?

A) The bank backs its currency with gold or silver.
B) The bank has considerable control over the stock of money and uses this control to moderate fluctuations in credit conditions and prices.
C) The bank regulates other banks.
D) The bank lends a lot of money to the government.
E) The bank serves as a lender of last resort to other banks by lending them money when no one else will.

Question 22

Which of the following antebellum institutions acted most like a central bank?

A) The First Bank of the United States
B) The Second Bank of the United States
C) Banks created by the National Bank Act
D) The U.S. Treasury

Question 23

The Second Bank of the United States rose to prominence under the leadership of

A) Alexander Hamilton.
B) Andrew Jackson.
C) Henry Clay.
D) Nicholas Biddle.

Question 24

The Forstall System was the antebellum banking regulation in

A) New England .
B) The old Northwest (Ohio, Indiana, Illinois, and neighboring states).
C) New York State .
D) Louisiana .

Question 25

In the mid-1830s, the U.S. entered an inflationary period that culminated in the depression of 1839-1843.  Contemporary economic historians attribute this economic downturn to

A) the demise of the Second Bank of the U.S. in 1832.
B) over-issue of gold coins by the U.S. Mint.
C) over-expansion by the manufacturing sector.
D) external forces, including large inflows of specie from Mexico and Europe.

Question 26

Wall Street bankers opposed the Second Bank of the United States. Their opposition was based on the idea that the Second Bank

A) lent too freely to the federal government.
B) followed a monetary policy that favored stable prices even at the cost of a slower growing economy.
C) followed a monetary policy that kept interest rates too high.
D) favored Philadelphia because that was where the head office of the bank was located.

Question 27

States that developed successful and sound commercial banking systems in the antebellum period included all of the following except

A) New York .
B) Ohio .
C) Michigan .
D) Louisiana .

Question 28

What was not one of the primary reasons why people opposed the First and Second Banks of the United States?

A) They printed too much money and triggered a substantial inflation.
B) They had monopoly control over some banking activities.
C) They were unconstitutional.
D) They did not provide sufficiently generous lending policies.

Question 29

__________________ was a vocally and actively opposed the re-chartering of the Second Bank of the United States.

A) Nicholas Biddle
B) Henry Clay
C) Andrew Jackson
D) Alexander Hamilton

Question 30

What best describes the US experience with banking from 1785 until the Civil War?

A) There was a national bank for the entire time period.
B) The first two national banks were largely foreign owned.
C) Only gold was used to back currency.
D) Only national banks could print notes.

Question 31

President Jackson's reasons for vetoing the recharter the Second Bank of the United States did not include

A) fears that the bank was nearing insolvency.
B) questions of constitutionality.
C) concerns over foreign ownership.
D) fears that the bank could undo democracy itself.

Question 32

How did several banks try to trick bank commissioners into convincing them of their sufficient reserves?

A) by "cooking the books."
B) by closing their doors, insisting on the state's bank holiday.
C) by moving the same specie reserve from one bank to another with a speedy sleigh.
D) by counterfeiting their own specie reserves.
E) All of the above.

Question 33

The reserve ratio of the Second Bank of the United States was ___________ the reserve ratio of most state banks.

A) larger than
B) smaller than
C) about equal to
D) dependent upon

Question 34

State banking systems of the antebellum period can best be described as

A) copies of the federal system.
B) embodiments of English banking practices.
C) astonishingly diverse.
D) primitive and insufficient for local economic needs.

Question 35

The charter of the Bank of the United States was not renewed in 1811 in part because

A) Thomas Jefferson, who was president at the time, believed it to be unconstitutional.
B) of years of general instability in the value of currency.
C) of instability and uncertainty in the expansion of credit.
D) of fears of foreign ownership and manipulation.

Question 36

In the term "Free Banking," the "free" means

A) the freedom of any state legislature to charter a bank.
B) the freedom of banks to mint U.S. coins.
C) the freedom of anyone to start a bank.
D) None of the above are correct.

Question 37

The Suffolk System

A) operated similarly to the modern Federal Deposit Insurance Corporation.
B) led to lower discount rates on the notes of country banks in New England.
C) was established by Nicholas Biddle.
D) was used primarily prior to 1863 in Louisiana.
E) All of the above.

Question 38

Which of President Jackson's actions had the biggest impact on the Depression of 1837?

A) the specie circular
B) the abdominal tariffs from 1830
C) the Fspecie circular
D) the distribution of federal surpluses to the states

Question 39

Which was not a result of the California gold rush?

A) A substantial increase in the money supply.
B) A large increase in GNP.
C) A significant decrease in the prices of farm goods.
D) A decline in the inequality of wealth

Question 40

Actions by the Second Bank of the United States

A) reduced the discount rate on state bank notes.
B) increased the discount rate on state bank notes.
C) created inflation.
D) effectively ended the use of state bank notes.

Question 41

In the 1850s, the proportion of silver in the currency supply fell, and the proportion of gold rose. This is an illustration of

A) the quantity theory of money.
B) Gresham 's law.
C) Say's law.
D) the Walrasian auctioneer.
E) it violates every known law of economics.

Question 42

The Coinage Act of 1792 set the relative values of silver and gold coins at 15 to 1.  Suppose the relative market values of silver and gold had equaled 16 to 1.  In this case,

A) only gold would circulate as money.
B) gold would be hoarded and sold abroad.
C) gold would be overvalued at the mint.
D) individuals would profit by selling gold to the mint.

Question 43

Which of the following is one of the reasons Peter Temin has argued that unemployment during the 1837-1844 depression was less severe than in later depressions?

A) The depression of 1837 was confined to the United States only.
B) The depression of 1837 remained confined to the stock market on Wall Street.
C) The labor department in 1837  tended to double-count unemployment numbers.
D) A large proportion of the labor force in agriculture experienced low incomes, not actual unemployment..

Question 44

If the market ratio of silver to gold is 16 to 1 and the mint ratio is 15 to 1,

A) people will cease to use gold and silver as money.
B) the Treasury will be forced to issue paper money.
C) gold is undervalued at the mint.
D) silver is undervalued at the mint.

Question 45

The Coinage Act of 1792 set the relative values of silver and gold coins at 15 to 1.  Suppose the relative values of silver and gold in the market was 14 to 1.  In this case,

A) only silver would circulate as money.
B) silver would be hoarded and sold abroad.
C) silver would be overvalued at the mint.
D) both gold and silver would circulate as money.