july in multiplex

Chapter 19
Money, Prices, and Finance in the Postbellum Era

General Questions
*1. Between the Civil War and World War I, the U.S. monetary system
a. experienced a persistent deflation.
b. suffered several financial crises in which banks closed and firms went bankrupt.
c. adopted a de facto gold standard.
d. adopted a central bank.
e. All of the above.
ANSWER: e. All of the above.

2. Following the Civil War, U.S. forms of money included all of the following except:
a. wooden nickels.
b. checks.
c. state bank notes.
d. greenbacks.
ANSWER: a. wooden nickels.

3. The "greenback"
a. provided a uniform currency across the U.S.
b. provided additional revenue for the government during the Civil War.
c. supplied monetary increases that sent prices skyrocketing.
d. All of the above are correct.
e. Only a and b are correct.
ANSWER: d. All of the above are correct.

4. Most of the increase in total money supply between 1860 and 1920 was due to
a. an increase in national bank notes.
b. the growth of bank deposits.
c. an increase in greenbacks.
d. new discoveries of gold and silver.
ANSWER: b. the growth of bank deposits.

*5. Republicans in Congress pushed for the passage of the National Bank Act of 1863 because
a. they wanted the executive branch to have more control over the amount of notes in circulation.
b. they wanted to encourage a mild inflation in the U.S.
c. they felt that the Act would reduce the temptation for weak administrations to over issue paper currency.
d. they wanted to reduce the number of banks in the U.S.
ANSWER: c. they felt that the Act would reduce the temptation for weak administrations to over issue paper currency.

6. Provisions of the National Bank Act of 1863 included all of the following except
a. mandated legal reserve requirements for banks chartered under the Act.
b. the requirement that banks chartered under the Act purchase a certain amount of US government bonds.
c. the creation of a currency with a standard design.
d. the creation of a central bank responsible for serving as a lender of last resort and an overseer of the money supply.
ANSWER: d. the creation of a central bank responsible for serving as a lender of last resort and an overseer of the money supply.

7. In 1865, Congress raised the tax on state bank notes to 10 percent of the value of notes in circulation. This tax
a. ended the dual banking system in the U.S.
b. was less than the tax on national bank notes.
c. was rescinded in 1870.
d. was avoided through the use of demand deposits.
ANSWER: d. was avoided through the use of demand deposits.

*8. In 1865, Congress raised the tax on state bank notes to 10 percent of the value of notes in circulation. Quantitative evidence shows that by 1900,
a. state banks had ceased to exist.
b. the number of state banks had declined dramatically.
c. the number of state banks had increased dramatically.
d. the number of state banks was roughly the same as in 1865.
ANSWER: c. the number of state banks had increased dramatically.

9. It has been argued that banks tended not to take full advantage of issuing notes, thereby passing up potential profits because
a. the profit amounts were small.
b. they were not the types of profits conservative bankers wanted to pursue.
c. regulations and opportunity costs involved with the issuance itself limited the profits.
d. All of the above are correct.
e. Only a and c are correct.
ANSWER: d. All of the above are correct.

10. Market barriers imposed on national banks
a. included both restrictions on mortgages and high capital requirements.
b. allowed rural banks to charge higher rates.
c. allowed national banks to price discriminate.
d. All of the above are correct.
e. Only a and b are correct.
ANSWER: e. Only a and b are correct.

11. Which of the following statements most accurately describes the role of banks in the United States between the Civil War and WWI?
a. The U.S., which had the largest economy in the world, also had the largest banks in the world.
b. Banking reforms increased the ability of state banks to issue their own notes.
c. Compared to state banks, national banks generally had higher reserve requirements and more restrictions on how they could handle their assets.
d. Those who borrowed money at fixed interest rates gain significantly during deflationary periods.
ANSWER: c. Compared to state banks, national banks generally had higher reserve requirements and more restrictions on how they could handle their assets.

12. During the Civil War, inflation caused U.S. prices to rise by roughly
a. 12 percent.
b. 32 percent.
c. 54 percent.
d. 76 percent.
ANSWER: d. 76 percent.

13. Between the years 1879 and 1900 America was on a de facto gold standard. Which of the following statements is not true about the 20-year period that preceded these years?
a. The nominal money supply grew faster than the population growth rate.
b. A policy of money contraction was initiated that caused deflation.
c. There existed efforts to resume an exchange of one dollar in greenbacks to one dollar in gold.
d. Resumption of the gold standard threatened to reduce the stock of gold because of relatively cheaper foreign goods.
ANSWER: a. The nominal money supply grew faster than the population growth rate.

*14. If the U.S. Treasury in 1865 had decided to make the dollar convertible into gold at the pre-War rate,
a. relatively cheap British goods would have been highly desired by American consumers.
b. the U.S. treasury would have quickly found its stock of gold depleted.
c. British citizens would have converted large amounts of pounds into dollars.
d. All of the above are correct.
e. Only a and b are correct.
ANSWER: e. Only a and b are correct.

15. During the post-Civil War debate over resuming the exchange of gold for greenbacks,
a. members of the Greenback party argued the returning to gold was not worth the economic pain.
b. Republicans argued that those who had loaned money to the government during the Civil War had the right to be paid in gold.
c. Republican argued that due to the Public Credit Act of 1869, bondholders were not required to be paid in gold.
d. None of the above is correct.
e. Only a and b are correct.
ANSWER: e. Only a and b are correct.

16. One important issue in the post-bellum currency debate concerned the coinage of silver by the federal government. Which of the following statements presents accurate information regarding the silver debate?
a. Silver circulated widely as money in the years immediately prior to the Coinage Act of 1873.
b. The Bland-Allison Act allowed for the Treasury to make limited monthly silver purchases at the market price.
c. Silver never circulated as money in the U.S. after 1873; however, it was used as a unit of account.
d. Congress passed the Coinage Act in 1873 despite widespread public opposition to this legislation at the time.
ANSWER: b. The Bland-Allison Act allowed for the Treasury to make limited monthly silver purchases at the market price.

17. When the Coinage Act of 1873 was passed, silver was worth _________ on the market than at the mint; however, subsequent __________ in the supply of silver led to public outcry over the “demonetization” of silver under the Act.
a. less; decreases
b. less; increases
c. more; decreases
d. more; increases
ANSWER: d. more; increases

*18. The Bland-Allison Act of 1878 and the subsequent Sherman Silver Purchase Act of 1890
a. led to an extended period of inflation in the U.S.
b. were both followed by increases in the market price for silver.
c. had no significant impact on silver prices or the price level.
d. decreased the Treasury’s supply of silver.
ANSWER: c. had no significant impact on silver prices or the price level.

19. Persistent U.S. deflation between 1879 and the mid-1890s was primarily due to the fact that the ___________ was growing faster than the _________.
a. supply of money; demand for money
b. demand for money; supply of money
c. demand for money; demand for goods
d. demand for goods; supply of money
ANSWER: b. demand for money; supply of money

*20. Between 1891 and 1896,
a. both “external” and “internal” gold drains plagued the U.S. Treasury.
b. Americans rushed to exchange notes for gold.
c. Treasury reserves of gold became critically low.
d. increases in commodity exports ultimately bolstered the gold reserves of the Treasury.
e. All of the above.
ANSWER: e. All of the above.

21. Americans who supported William Jennings Bryan and the “Free Silver” movement
a. advocated a reduction in the U.S. money supply.
b. included the US Secretary of the Treasury.
c. wanted to increase the U.S. price level.
d. wanted free railroad transport of silver from western mines to the east.
ANSWER: c. wanted to increase the U.S. price level. 22. In the election of 1896, supporters of William McKinley included all of the following except
a. advocates for the gold standard.
b. voters opposed to high tariffs.
c. industrial employers in the East.
d. Republicans.
ANSWER: b. voters opposed to high tariffs.

*23. The goals of monetary expansion and inflation that were advocated by followers of William Jennings Bryan
a. were never accomplished in the 19th century.
b. were achieved through the passage of the Sherman Silver Purchase Act of 1890.
c. were ultimately accomplished because of increased supplies of gold.
d. were eventually adopted as part of the Republican Party’s platform.
ANSWER: c. were ultimately accomplished because of increased supplies of gold.

24. Deflation
a. often accompanies increases in the money supply.
b. is good for borrowers, but bad for lenders.
c. is good for lenders, but bad for borrowers.
d. cannot occur under a bimetallic standard.
ANSWER: c. is good for lenders, but bad for borrowers.

25. The years between 1896 and World War I were characterized by
a. rapidly rising prices in the U.S.
b. wild fluctuations in international exchange rates.
c. the “heyday” of the gold standard in the U.S. and most industrialized countries.
d. barriers that prevented the flow of goods and capital across international borders.
e. All of the above.
ANSWER: c. the “heyday” of the gold standard in the U.S. and most industrialized countries.

*26. The move to an international gold standard between 1896 and World War I
a. encouraged the free flow of goods and capital between countries.
b. was accompanied by moderate increases in prices.
c. required a higher use of resources than would have been the case under a paper standard.
d. made it difficult to exercise expansionary monetary policy.
e. All of the above.
ANSWER: e. All of the above.

27. In the late 1800s, problems with the U.S. banking system included
a. uneven distribution of notes throughout the country.
b. varied banking regulations across states.
c. the use of “country bank” reserves to support call loans made by larger urban banks.
d. the tendency of commercial banks to reduce money and credit during recessions.
e. All of the above.
ANSWER: e. All of the above.

*28. In the U.S. during the late 1800s and early 1900s, investment banks
a. emerged to serve the expansion of railroads, mining companies and large manufacturers.
b. issued bank notes.
c. competed with state and national banks for deposits.
d. were required by law to maintain a minimum reserve ratio.
e. All of the above.
ANSWER: a. emerged to serve the expansion of railroads, mining companies and large manufacturers.

*29. J.P. Morgan was instrumental in the formation of
a. Ford Automobiles.
b. U.S. Steel Corporation.
c. Standard Oil.
d. Swift Meats.
ANSWER: b. U.S. Steel Corporation.

*30. In the late 1800s, options for banks faced with a severe panic included all of the following except:
a. selling bonds.
b. calling in loans.
c. suspending cash payments.
d. obtaining a short-term loan from the central bank.
ANSWER: d. obtaining a short-term loan from the central bank.

*31. In the late 19th century, interest rates
a. tended to remain relatively constant throughout the year.
b. tended to increase in the summer and decrease in the winter.
c. tended to increase in the fall and winter, and decrease in the spring and summer.
d. tended to rise steadily from winter through summer, and then decrease in the fall.
ANSWER: c. tended to increase in the fall and winter, and decrease in the spring and summer.

32. The Federal Reserve Act
a. established a clearinghouse system for checks and notes.
b. allowed only nationally-chartered banks to become members of the Federal Reserve system.
c. allowed the Fed District Banks to offer commercial loans to private businesses at reduced interest rates.
d. required that all Fed District Bank directors be associated with the commercial banking industry.
e. all of the above.
ANSWER: a. established a clearinghouse system for checks and notes.

33. What is not true of The Federal Reserve Act (1913)?
a. Membership in the system was made compulsory for national banks.
b. State banks were not permitted to join the system.
c. The member banks nominally owned the Federal Reserve Banks.
d. Member banks had to deposit cash, previously held as reserves, with the District Federal Reserve Bank.
ANSWER: b. State banks were not permitted to join the system.

Economic Insights
1. In accordance with the "Fisher effect,"
a. farmers with mortgages could benefit from inflation.
b. expectation of inflation could trigger higher interest rates for mortgages.
c. if silver inflation was expected, farmers could command lower interest rates when renewing a mortgage.
d. All of the above are correct.
e. Only a and b are correct.
ANSWER: e. Only a and b are correct.

2. Which of the following most accurately describes the “Fisher effect?”
a. Interest rates increase after inflation and decrease after deflation, but with a long lag.
b. Interest rates are independent of inflation and deflation.
c. Interest rates increase after inflation, but are not affected by deflation.
d. Increasing interest rates precede inflation and decreasing interest rates precede deflation.
ANSWER: a. Interest rates increase after inflation and decrease after deflation, but with a long lag.