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The National Bank Act was passed in 1864 to provide a uniform currency

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Re: The National Bank Act was passed in 1864 to provide a uniform currency  [#permalink]

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New post 28 Aug 2018, 09:30
hazelnut wrote:
JarvisR wrote:
The National Bank Act was passed in 1864 to provide a uniform currency, to eliminate the overissuance of bank notes, and to create a market for government bonds. Up to this point, the United States had some 1,500 state banks issuing their own notes, which circulated as money – not government money, but bank money. At the time of the Civil War, there were about 7,000 different types of legitimate bank notes in circulation, to say nothing of several thousand kinds of counterfeit notes. Thus, conditions were confusing, and businessmen – among others – demanded a uniform currency. Also, during the Civil War, the Union was having trouble selling its bonds, at least until Jay Cooke took them off its hands. Thus, in answer to its problems and those of businessmen, the government enacted the National Banking Act.

This Act permitted five or more persons to charter a national bank, the charter being issued by the federal government. The bank’s capitalization depended upon the size of the town in which the bank was located, with the capitalization level going higher for larger cities. For example, banks in towns of less than 6,000 people had to have a minimum capitalization of $50,000; banks in cities of 50,000 people or more had to have a minimum capitalization of $200,000.

Upon passage of the Act, it was felt that there would be a rush of state banks to take out national charters. At first, however, most state banks kept their state charters. A fair number of them had traditional, respected names, and they had no wish to exchange them for names like the First National Bank of Chicago. Other state banks, of course, stood to gain in prestige and customer confidence by making a name change, and so they switched over. The federal government, in any way, was determined to do away with the heterogeneous note issues of state banks and, to do so, in 1865 placed a prohibitive tax of 10% per year on state bank notes. The tax was effective. Not only were state bank notes made unprofitable and driven out of circulation, but a majority of state banks immediately shifted over to federal jurisdiction. Those banks that retained state charters were, for the most part, banks in big cities which had been rapidly replacing their notes with check transactions, anyway. So checks, based on bank deposits, displaced state bank notes as the most convenient form of money in state banks, and the use of checks did much to save the stronger state banks after 1865.
Q2: Which of the following can be logically deduced from the passage?

A Prior to 1864, some state banks issued more than one type of bank note.
B The National Bank Act decreased the number of counterfeit bank notes in circulation.
C Had Jay Cooke not purchased Union Civil War bonds, the Union would have been unable to sell them.
D Up until the National Bank Act, counterfeiting bank notes was a profitable enterprise.
E The majority of businessmen were pleased by the passage of the National Bank Act.



Solution


A. In the first paragraph, you learn that approximately 1,500 state banks existed, but over 7,000 state bank notes existed. Clearly, then, some banks printed more than one type of note.

Choice B is incorrect; although one intent of the Act was to reduce counterfeiting, the passage does not indicate that it was successful, and furthermore it could well be that new counterfeit bills decreased in frequency but none of the existing bills were eliminated.

Choice C also goes too far - you learn that Cooke did buy the bonds, but only that the Union was "having trouble" selling them, not that it was impossible.

Choice D is incorrect as no indication is made that counterfeiting was profitable, just that it happened.

And choice E goes too far - we know that businessmen wanted solutions, but not that more than half were in favor of that particular Act.


hazelnut

For option A how can we say that some banks printed more than one type of note? Just because there are 7000 bank notes and 1500 banks issuing them doesn't mean they were the ones issuing multiple notes. As the passage says, there were several counterfeit kinds. It may be possible that those counterfeit kinds were prepared by some unscrupulous people

Pls help
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Re: The National Bank Act was passed in 1864 to provide a uniform currency  [#permalink]

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New post 28 Aug 2018, 09:45
JarvisR wrote:
The National Bank Act was passed in 1864 to provide a uniform currency, to eliminate the overissuance of bank notes, and to create a market for government bonds. Up to this point, the United States had some 1,500 state banks issuing their own notes, which circulated as money—not government money, but bank money. At the time of the Civil War, there were about 7,000 different types of legitimate bank notes in circulation, to say nothing of several thousand kinds of counterfeit notes. Thus, conditions were confusing, and businessmen—among others—demanded a uniform currency. Also, during the Civil War, the Union was having trouble selling its bonds, at least until Jay Cooke took them off its hands. Thus, in answer to its problems and those of businessmen, the government enacted the National Banking Act.

This Act permitted five or more persons to charter a national bank, the charter being issued by the federal government. The bank’s capitalization depended upon the size of the town in which the bank was located, with the capitalization level going higher for larger cities. For example, banks in towns of less than 6,000 people had to have a minimum capitalization of $50,000; banks in cities of 50,000 people or more had to have a minimum capitalization of $200,000.

Upon passage of the Act, it was felt that there would be a rush of state banks to take out national charters. At first, however, most state banks kept their state charters. A fair number of them had traditional, respected names, and they had no wish to exchange them for names like the First National Bank of Chicago. Other state banks, of course, stood to gain in prestige and customer confidence by making a name change, and so they switched over. The federal government, in any way, was determined to do away with the heterogeneous note issues of state banks and, to do so, in 1865 placed a prohibitive tax of 10% per year on state bank notes. The tax was effective. Not only were state bank notes made unprofitable and driven out of circulation, but a majority of state banks immediately shifted over to federal jurisdiction. Those banks that retained state charters were, for the most part, banks in big cities which had been rapidly replacing their notes with check transactions, anyway. So checks, based on bank deposits, displaced state bank notes as the most convenient form of money in state banks, and the use of checks did much to save the stronger state banks after 1865.

1. Which of the following can be inferred about the period prior to 1864?

(A) There was not a federal tax on state bank notes.
(B) Most small town banks were capitalized with less than $50,000.
(C) State banks relied heavily on check transactions.
(D) Bank notes were issued more often than was ideal.
(E) The capitalization of a bank was directly correlated to the size of the town or city it was in.



2. Which of the following can be logically deduced from the passage?

(A) Prior to 1864, some state banks issued more than one type of bank note.
(B) The National Bank Act decreased the number of counterfeit bank notes in circulation.
(C) Had Jay Cooke not purchased Union Civil War bonds, the Union would have been unable to sell them.
(D) Up until the National Bank Act, counterfeiting bank notes was a profitable enterprise.
(E) The majority of businessmen were pleased by the passage of the National Bank Act.



3. Which of the following can be inferred from the passage?

(A) A national bank with an initial capitalization of $50,000 in 1864 must have been located in a city of less than 6,000 residents.
(B) A national bank with an initial capitalization of $225,000 would be guaranteed a federal charter regardless of location.
(C) A national bank with an initial capitalization of $250,000 in 1864 must have been located in a city of more than 50,000 residents.
(D) A national bank located in a city with 40,000 residents must have had an initial capitalization of between $50,000 and $200,000.
(E) A national bank with an initial capitalization of $45,000 would not have received a charter from the federal government.




Gnpth

I don't understand what is wrong with E??
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Re: The National Bank Act was passed in 1864 to provide a uniform currency  [#permalink]

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New post 29 Aug 2018, 08:22
I want to understand how options B and E are negated in question 3.
Help souvik101990 and Bunuel.
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Re: The National Bank Act was passed in 1864 to provide a uniform currency  [#permalink]

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New post 25 Sep 2018, 14:50
PAVANIJOSHI374 wrote:
Hi,

Can someone explain why is option E incorrect in Q2.
This sentence appears towards the end of the first paragraph.
"Thus, in answer to its problems and those of businessmen, the government enacted the National Banking".., which gives a direction that majority of businessmen were pleased by passage of National Banking Act.


E uses extreme language "majority", which isn't supported by the passage anywhere.
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Re: The National Bank Act was passed in 1864 to provide a uniform currency  [#permalink]

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New post 06 Oct 2018, 00:39
For 3.
E. In paragraph two, the capitalization requirements for banks are discussed, and the minimum capitalization for a small town of 6,000 or less is set at $50,000. Thus, answer choice E is true - such a bank would not qualify for a federal charter. Choice A is incorrect as the passage does not stipulate the next level above 6,000 residents; it could be that that level held for cities up to 20,000 or more. And choice B is wrong in that the capitalization requirement is only one of the requirement to receive a charter. Such a bank may have failed another requirement. Choice C is incorrect, as the stipulations only talk about the minimum requirements, and don't say that there would be anything stopping a smaller-town bank from exceeding that total. And choice D is wrong for the same reason; we know the minimum capitalization but not the maximum, so such a bank could have had more cash on hand than $200,000.
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Re: The National Bank Act was passed in 1864 to provide a uniform currency &nbs [#permalink] 06 Oct 2018, 00:39

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