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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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23 Jun 2017, 08:05
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Passage

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.

Question 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.

Question 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.

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

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22 Oct 2017, 12:11
How is 'A' correct for Q2. Please explain.
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Re: The National Bank Act was passed in 1864 to provide a uniform currency  [#permalink]

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23 Oct 2017, 20:05
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tam1na wrote:
How is 'A' correct for Q2. Please explain.

Hi tam1na,

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 Prior to 1864, some state banks issued more than one type of bank note.

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

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24 Oct 2017, 21:33
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.

Q1- I marked opt A for Q1. Can someone explain how opt D is correct?
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Re: The National Bank Act was passed in 1864 to provide a uniform currency  [#permalink]

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29 Oct 2017, 01:42
1
gmattarget2017 wrote:
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.

Q1- I marked opt A for Q1. Can someone explain how opt D is correct?

Hi..let me give it a try.

I will talk about options A and D only as it seems you have eliminated the others.

A - We know for certain that the govt. did impose a prohibitive tax on the bank notes after the passage of the national bank act..but can we say for sure that there was no tax on these notes prior to this? We cannot, because the passage does not indicate that the prohibitive tax was the first tax on the bank notes.

D - Read the first line. It says that the national bank act was passed in order to control the "overissuance of bank notes".

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

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30 Oct 2017, 00:15
Question 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.

Why the answer cannot be B ??
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The National Bank Act was passed in 1864 to provide a uniform currency  [#permalink]

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22 May 2018, 18:23
Because we are not 100% sure about the decrease in Counterfeit notes.There may be a case where people came up the counterfeit bank notes in the new currency. Thats why B is wrong.

+1 if this helps!

Question 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.

Why the answer cannot be B ??

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The National Bank Act was passed in 1864 to provide a uniform currency &nbs [#permalink] 22 May 2018, 18:23
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