Chapter 19
Money, Prices, and Finance
in the Postbellum Era
GENERAL QUESTIONS
1. 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.
2. 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.
3. 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 U.S. 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.
4. In 1865, Congress raised a 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 United States.
b. was less than the tax on national bank notes.
c. was rescinded in 1870.
d. was avoided through the use of demand deposits.
5. Which of the following statements most accurately describes the role of banks
in the United States between the Civil War and WWI?
a. The United States, 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 gained significantly
during deflationary periods.
6. 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.
7. One important issue in the postbellum 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 United States 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.
8. 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
9. 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.
10. 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
11. Americans who supported William Jennings Bryan and the “Free Silver”
movement
a. advocated a reduction in the U.S. money supply.
b. included the U.S. 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.
12. 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.
13. The years between 1896 and World War I were characterized by
a. rapidly rising prices in the United States.
b. wild fluctuations in international exchange rates.
c. the “heyday” of the gold standard in the United States and most
industrialized countries.
d. barriers that prevented the flow of goods and capital across international
borders.
e. all of the above.
14. 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.
15. 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
16. 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.
ECONOMIC INSIGHTS
1. The quantity theory of money relates the amount of money in the economy to
which three variables?
a. the proportion of income held as money, the price level, and real output
b. the proportion of income held as money, the price level, and the velocity
of money (number of times during the year that a dollar is changed from
one person to the other)
c. the wages of all individuals, profits for all businesses, and amount of
money held by government agencies
d. the wages of all individuals, the velocity of money, and gross domestic
product
2. According to the quantity theory of money, which one of the following would
one increase the amount of money in the economy?
a. decrease the fraction of income held as money
b. decrease in real output
c. increase in prices
d. increase the balance of trade
3. 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.
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