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

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

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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.


Q1: 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.


[Reveal] Spoiler:
D


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.


[Reveal] Spoiler:
A


OA updated.
[Reveal] Spoiler: Question #1 OA
[Reveal] Spoiler: Question #2 OA

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Last edited by JarvisR on 26 Jan 2015, 07:45, edited 4 times in total.

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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 26 Jan 2015, 02:22
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JarvisR: I'm not sure about the OA. Those two OA I have put in are just my thought. Can you please post the OA, if you have.

Also, please read the rules for RC forum before posting any questions in RC forum
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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 26 Jan 2015, 06:29
Gnpth wrote:
JarvisR: I'm not sure about the OA. Those two OA I have put in are just my thought. Can you please post the OA, if you have.

Also, please read the rules for RC forum before posting any questions in RC forum


Hi Gnpth,
Millions thanks for formatting the question. I appreciate and will update the OA soon.
I will refer the formatting that u shared, in my future RC posts.
Is there any other rules/guidelines that I missed here?
BTW how close is this Q to actual GMAT passage?
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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 26 Jan 2015, 07:04
I think the passage is not complete in its answer choices

generally, Veritas has at least 4 question (and long passage even more) but how official passages are...

Regarding your question, I think Veritas more closely resembles the official passage. In my opinion mgmat are not "real" as official 's passages

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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 26 Jan 2015, 07:59
JarvisR wrote:
Gnpth wrote:
JarvisR: I'm not sure about the OA. Those two OA I have put in are just my thought. Can you please post the OA, if you have.

Also, please read the rules for RC forum before posting any questions in RC forum


Hi Gnpth,
Millions thanks for formatting the question. I appreciate and will update the OA soon.
I will refer the formatting that u shared, in my future RC posts.
Is there any other rules/guidelines that I missed here?
BTW how close is this Q to actual GMAT passage?


Welcome. No this is the rules for posting in RC forum. You may refer it here for future.

This is kind of 600 level passage. And sometimes an RC can have 2 questions, if it is pretty much easy.
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The National Bank Act was passed in 1864 to provide a uniform currency [#permalink]

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New post 26 Jan 2015, 08:07
Thank you Carcass. Veritas passages are pretty tricky for me. :)
I got these 2 qs while trying RC practice quizzes from Veritas. I will update other qs once i come across them in other practice sets.

Coming to the Qs:
Can you help me with Q1. As per Vertias answer is D and I marked A. I understand why cant i back up A but IMHO D is not worded correctly.
Para 1 mentions "over issuance" which is different from "often", whereas D says "Bank notes were issued more often than was ideal."

>>Corrected B to A.
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Last edited by JarvisR on 26 Jan 2015, 09:28, edited 1 time in total.

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

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New post 26 Jan 2015, 08:43
JarvisR wrote:
Thank you Carcass. Veritas passages are pretty tricky for me. :)
I got these 2 qs while trying RC practice quizzes from Veritas. I will update other qs once i come across them in other practice sets.

Coming to the Qs:
Can you help me with Q1. As per Vertias answer is D and I marked B. I understand why cant i back up B but IMHO D is not worded correctly.
Para 1 mentions "over issuance" which is different from "often", whereas D says "Bank notes were issued more often than was ideal."



I think you got it wrong in understanding. The passage doesn't say small town banks had capitalization of less than $50000. It said Minimum of $50000. And that is for the act. I don't think it mentioned for period prior 1864.

And the passage one clearly mentioned over issuance. It means they can issue the notes whenever they want. That's what we infer and option D states that. Hope it helps
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New post 26 Jan 2015, 08:46
to say nothing of several thousand kinds of counterfeit notes

From this you can suddenly infer there is a disproportion between what the current economy at the time needed and what the banks issued.

In b you have exactly the contrary of what the passage asserts: the passage says at least, so >=. B says <....

Hope is clear. Regards
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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 26 Jan 2015, 09:36
Firstly my apologizes. I mentioned B instead of A in my post.
Secondly, Para 1 mentions "over issuance", which means more than what was required/exceeding the limit. It doesn't mean "often", frequently or many times in a short interval.
I feel D could have been worded properly. Or m I missing something here.
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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 Feb 2015, 11:57
JarvisR wrote:
Firstly my apologizes. I mentioned B instead of A in my post.
Secondly, Para 1 mentions "over issuance", which means more than what was required/exceeding the limit. It doesn't mean "often", frequently or many times in a short interval.
I feel D could have been worded properly. Or m I missing something here.

Hi! I think you are missing the more often than was ideal.

If I overdose on cocaine I took it more often than it was ideal.
If the banks over issued something they issued it more often than it was ideal.

I hope I could make my point clear.

I struggle with question 2:

How can we be sure that the banks did issued more than one type of bank note? I know 1500 banks had 7000 bank notes, but maybe earlier 5500 different banks emitted 5500 different notes, but all had to close. Their notes still circulated. Couldnt that be possible?

p.s.: I do not take cocaine.

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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 27 Sep 2016, 02:22
Please answer below question as per the given passage

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.

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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 30 Sep 2016, 13:26
Gnpth wrote:
JarvisR: I'm not sure about the OA. Those two OA I have put in are just my thought. Can you please post the OA, if you have.

Also, please read the rules for RC forum before posting any questions in RC forum


Hi Jarvis,

I marked D and A. I hope they are correct OA...aren't they ?

Other moderators can put up their clear cut analysis for on these two questions..

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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 08 Nov 2016, 07:45
Could you please update with all the questions? Its a waste to read the passage and only solve two questions.

Also there is no way that this passage only had two questions originally.

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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 Nov 2016, 18:09
That is kinda annoying....
Along passage with just 2 questions...:D.. :D..Anyways a nice passage gotta say that.....
Can anybody please provide an explaination to question number 2?

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

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New post 12 Nov 2017, 23:58
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.
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