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

Question

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 
 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 
 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 
 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.

4 
 4. According to the passage, a large state bank In New York City would most likely take which of the following actions following the passage of the National Bank Act?

(A) Immediately give up its state charter and adopt the national currency
(B) Switch its name to increase consumer confidence
(C) Stop issuing state bank notes in order to increase prestige
(D) Continue to increase its use of checks
(E) Demand that the federal government reduce its state note tax

5 
 5. Which of the followed can be inferred from the passage about the National Bank Act of 1864?

(A) It would not have met its goals without additional legislation
(B) It reduced the problem of bank note counterfeiting
(C) It increased convenience for banking customers by requiring checks
(D) It increased the market for government bonds
(E) It contributed to a more homogenous national currency

6 
 6. The primary purpose of the passage is to:

(A) Describe the requirements that the National Bank Act placed on banks.
(B) Detail the effects that the passage of the National Bank Act had on the American financial system.
(C) Present the reasons for and effects of a landmark piece of legislation.
(D) Argue that the National Bank Act was necessary for businesses to operate effectively.
(E) Demonstrate the superiority of checking-based banking over the issuance of state bank notes.

tejyr · Accepted Answer

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.

Q3  which you are having doubt is inferred from the above sentence of 3rd para last line. Actually this type of inference does not refer to any particular aspect in question but as per the options (which have $ and people) I got to this line.

(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.-  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

inferrable which is exact as above pasted example line

(B) A national bank with an initial capitalization of $225,000 would be guaranteed a federal charter regardless of location.

- Can't be inferred nowhere stated like that

(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.

-  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

- We can't infer as only we know >50000 residents there will be min $200000 also <6000 can have $250000 as min is $50000

(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.

- Can't be inferred

(E) A national bank with an initial capitalization of $45,000 would not have received a charter from the federal government.

- Can't be inferred

BillyZ · Answer

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.

Sajjad1994 · Answer

Official Explanation

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

Difficulty Level:   750

Explanation

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.

Answer: E

Hope it helps

SwaroopJoshi · Answer

Q. According to the passage, a large state bank In New York City would most likely take which of the following actions following the passage of the National Bank Act?

A) Immediately give up its state charter and adopt the national currency
B) Switch its name to increase consumer confidence
C) Stop issuing state bank notes in order to increase prestige
 D) Continue to increase its use of checks 
E) Demand that the federal government reduce its state note tax

OA : Option D
 OE : For this question, you should go to the last paragraph where large state banks and banks in big cities are discussed. In that paragraph you learn that smaller, less prestigious state banks were more than happy to switch to national charters immediately after the Act was passed because it increased prestige and consumer confidence. However, large well-known state banks did not switch to the national charter until the 10% tax was passed. Therefore, after the passage of the act, a large state bank in New York City would definitely NOT do (A) or (B). Those were things associated with small, lesser-known banks. (C) is also wrong because it was not doing anything to increase prestige as that was not a problem. There is no basis for (E) at all in the passage so you are left with (D). In the following sentence it is clear that large state banks in cities were doing just this: “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” Answer is (D).

Q. Which of the followed can be inferred from the passage about the National Bank Act of 1864?

A) It would not have met its goals without additional legislation
B) It reduced the problem of bank note counterfeiting
C) It increased convenience for banking customers by requiring checks
D) It increased the market for government bonds
 E) It contributed to a more homogenous national currency

OA - Option E
 OE - Again, this is a broad question that requires confirming each answer choice (you will not be looking at only one area in the passage). (A) is incorrect but difficult. You know that the additional legislation in 1865 (the 10% tax) helped dramatically speed up the goals of the original act, but we do NOT know from this that the National Bank Act would not have met its goal without the help of this tax. Remember, the correct answer must be true based upon the passage. For (B) there is no information given about what the Bank Act did to help the problem of counterfeiting – you just know that a problem did exist. For (C), the National Bank Act did not require checks – requiring checks is something that was already taking place in large state banks. For (D), you do not know what effect the National Bank Act had on government bonds. One of the goals was to increase the market for government bonds, but no information was given about whether the goal was achieved. One goal of the National Bank Act was to provide a uniform currency and there is plenty of evidence given in the last paragraph that it was at least partially successful in accomplishing this. Answer is (E)

Sajjad1994 · Answer

Official Explanation

6. The primary purpose of the passage is to:

Explanation

The passage begins by discussing the needs for an act, and then goes on to talk about its effects, meaning that C spans the entire purpose of the passage.

Choice A  is incorrect, as only paragraph two really discusses the requirements and only does so to a limited extent.

Choice B  is similarly too narrow in scope - it misses the large portion of the passage that discusses the need for the Act.

Choice D  is incorrect, as the author's intent was not to argue, but merely to describe.

And  choice E  is particularly narrow in scope, only coming into play in the last few sentences.

Answer: C

user84525084572 · Answer

Can someone please explain question 2?

The text clearly states that "Thus, in answer to its problems and those of *businessmen*, the government enacted the National Banking Act."

Thus, in my opinion (E) needs to be the correct answer

guddo · Answer

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

Before 1864, many state banks issued their own notes, creating thousands of legitimate and counterfeit notes and a confusing money system. The National Bank Act and then a 10% tax on state bank notes pushed many banks into the national system and helped shift payments toward checks.

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

The passage says there were about 1,500 state banks but  7,000 different types  of legitimate bank notes in circulation.  Since 7,000 is greater than 1,500, at least some banks must have issued more than one type.  So this can be deduced.

(B) The National Bank Act decreased the number of counterfeit bank notes in circulation.

The passage says counterfeits existed, but it never says the Act reduced counterfeit notes specifically. Not deducible.

(C) Had Jay Cooke not purchased Union Civil War bonds, the Union would have been unable to sell them.

It says the Union had trouble selling bonds until Jay Cooke helped, but “trouble” does not mean “impossible.” Not deducible.

(D) Up until the National Bank Act, counterfeiting bank notes was a profitable enterprise.

The passage mentions many counterfeit notes, but it does not state anything about profitability. Not deducible.

(E) The majority of businessmen were pleased by the passage of the National Bank Act.

It says businessmen demanded a uniform currency, but it does not say a majority were pleased by the Act. Not deducible.

Answer: (A)

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

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

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

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards