Money and Banking Chapter 15
Prices
__________ provide the information people need to allocate their resources.
Aldrich-Vreeland Act of 1908
act that was passed after the Panic of 1907 to stop money panics
$35 million
amount of capital that BUS II started with
19.5%
annual rate of increase in inflation during the interim period between BUS I and BUS II
James McCulloch
cashier for the Maryland branch of BUS II who was instrumental in arguing a significant Supreme Court case and later embezzled 2% of the U.S. money supply
National Monetary Commission
commission led by Nelson Aldrich that was supposed to solve the Central Bank issue
hyperinflation
condition under which prices double every 2-3 months
Bureau of Engraving and Printing
creates paper money
Wells Fargo
current name of the Bank of North America
1833-1864
dates of the Free Banking Era after BUS II
Congress
determines the government's budget through fiscal policy
technology, capital stock, and number of people who can work
factors that affect potential output
Tench Francis, Jr.
first cashier of the Bank of NA, who was later appointed First Purveyor of Public Supplies by George Washington, paving the way for the Navy Supply Corps
Bank of the U.S.
first federally chartered commercial bank, located in Philadelphia
Boston, NY, Charleston, and Baltimore
first four branch locations of BUS 1
William Jones
first president of BUS II (Madison's former Secretary of the Navy)
inflation, real growth, financial market, interest, rates, and exchange rates
five things the central bank seeks to stabilize
return bank notes to other banks and demand payment in gold
how BUS I went about reducing the money supply
20 years
length of BUS I's charter
20 years
length of BUS II's charter
Fed
nickname for the Federal Reserve System
Wildcat Banking
nickname for the Free Banking Era of the nineteenth century
Bus I
nickname for the first Bank of the U.S.
BUS II
nickname for the second Bank of the U.S.
18
number of countries with central banks in 1900
25
number of members on BUS II's Board of Directors
1
number of votes by which BUS I's charter was not renewed
137
number of years the U.S. existed before creating the Federal Reserve
Federal Reserve Notes
paper currency issued by the Fed
20%
percentage of BUS I that was owned by the U.S. government
20%
percentage of BUS II stock held by the U.S. government
take active control of its money
primary reason for a country to create a central bank
20%
reserve ratio that BUS I imposed on itself
Langdon Cheves
second president of BUS II; an SC native who helped defeat the re-chartering of BUS I
potential ouput
term for a long-run, sustainable level of production
sustainable growth
term for growth in potential output
Owen-Glass Act of 1913
the act that created the Federal Reserve System (also called the Federal Reserve Act)
$15 million
the amount of gold shipped to France for the Louisiana Purchase during the period of BUS II
Federal Reserve System
the central bank of the United States
Alexander Hamilton
the first Secretary of the Treasury; a Federalist who oversaw the rise of the Bank of the U.S., and sponsored the Mint Act
Bank of North America
the first incorporated bank in the US, created by the Continental Congress in 1781
government examiners and supervisors
the only ones who can handle sensitive bank information without conflict of interest
Nicholas Biddle
the self-assured third president of BUS II who had written extensively on finance
centralized reserve, check-clearing mechanism, and fiscal agent
the three primary needs identified by the National Monetary Commission
Louis McLane and William Duane
the two Secretaries of the Treasury who refused to follow Jackson's order to withdraw BUS II's funds and were fired
government's bank and banker's bank
the two basic roles of the Federal Reserve System
independent, accountable, and good communicators
three important qualities of central bankers that make up the *monetary framework*
government's bank, commercial bank, and controller of the money supply
three main functions of BUS I
provide loans during bad times, manage the payments system, and oversee commercial banks
three main ways the Fed carries out its role as the bankers' bank
printing currency, lending, and receiving/releasing other banks' notes
three methods by which BUS I controlled the nation's money supply
externalities, public goods, and volatility
three reasons why the public, not private sector needs to fulfill the central bank role
accepting deposits (tax receipts), making loans to the government, and making payments to the government
three ways BUS 1 acted as the government's bank
1791-1811
time period when the first Bank of the U.S. was the government's bank
1816-1833
time period when the second Bank of the U.S. was the government's bank
National Banking Act and National Uniform Currency Act
two important acts that ended the Wildcat Banking Era
safety and convenience
two main reasons why banks wanted to hold deposits in the central bank
"Reserve Bank" or "Monetary Authority"
two other terms for a Central Bank
unfair competition, heavy foreign ownership
two reasons small banks gave for why BUS I should be abolished
taxes and debt
two ways that fiscal policymakers can finance government spending
1836
year when BUS II died as a result of Jackson's veto
1781
year when the Bank of North American was created
1913
year when the Federal Reserve Act created the Federal Reserve System
1914
year when the Federal Reserve system actually began operations
1864
year when the National Banking Act and National Uniform Currency Act were passed, ending the Wildcat Era
1812-1816
years of the interim period between BUS I and BUS II
currency, money supply, interest rates; commercial banks
A central bank manages a country's _______, __________, and ____________; and oversees some or all of a nation's _________ __________.
public, private credit
Alexander Hamilton said, "The tendency of a national bank will be to increase _______ and _______ ___________."
money
As the bankers' bank, the Fed has the monopoly on the creation of ________.
fiscal agent
As the government's bank, the Fed acts as the ________ _______.
8%
BUS 1 was very profitable, paying a dividend of ______.
private stockholders
BUS I was patterned after the Bank of England, except that it had _______ ____________.
Winston Churchill
British politician who said "The farther backward you can look, the farther forward you can see."
King William of Orange, Bank of England; Napoleon Bonaparte, Banque de France
Central banks are a 20th century phenomenon with two exceptions. Name the two national leaders and the banks they led prior to the 20th century.
Nelson Aldrich
Chairman of the Senate Finance Committee who supported the banking industry and helped pass an important act in 1908; created/led the National Monetary Commission
Daniel Webster
Congressman who introduced a bill for an early re-charter of BUS II in 1832
branches, specie, examiners
During the Wildcat Era, banks cheated on the specie requirement by moving gold between _______, filling boxes with nails or glass and putting ______ on top, and ________ bank examiners to record higher reserves.
currencies, gold inflow, foreign investment, and cheating
During the Wildcat Era, there was an increase in the amount of different ________, __________ from cotton exports, and _________ in U.S. infrastructure; as well as _______ on the 12.5% reserve requirement.
secure, efficient
Every country needs a ______ and _______ payments system.
monetary policy
Fed's responsibility that involves increasing or decreasing the money supply
stability
Financial system _______ is part of every central banker's job.
Bank of Pennsylvania
In 1793, the Bank of NA became the state-chartered ________ ___ ________.
control, irreversible
In order to be independent, a central bank must be able to ________ its budgets, and they must be ___________.
information
Inflation degrades the _________ content of prices.
Continental Currency
Investors were permitted to purchase stock in BUS 1 with virtually worthless ____________ ____________.
George Clinton
James Madison's VP, who cast the tiebreaking vote that resulted in BUS I's charter not being renewed
inflation
Losing control of money creation involves losing control of _________.
lender of last resort
Money panics occurred because there was no "______ __ ____ _______."
Roger Taney
Secretary who followed Jackson's order to kill BUS II and was later appointed Chief Justice of the Supreme Court, delivering the Dred Scott opinion
True
T of F: Central banks played a key role in worldwide recovery after the financial crisis of 2008.
True
T of F: In its early days, the Fed kept enough reserves to redeem notes in silver, and even some in gold.
True
T of F: Many individuals held accounts at BUS I.
False
T of F: Monetary corruption is largely a 21st century phenomenon.
True
T of F: Responsible fiscal policy is necessary for successful monetary policy.
False
T of F: Small banks appreciated the role of BUS I.
True
T or F: Alexander Hamilton supported the creation of a central bank.
True
T or F: All major central banks make decisions by committee.
False
T or F: Andrew Jackson and Nicholas Biddle were allies.
False
T or F: Andrew Jackson supported BUS II.
True
T or F: BUS II cause many smaller banks to go bankrupt.
False
T or F: Carter and Glass, who led the passing of the Federal Reserve Act, were Republicans.
False
T or F: Central bank independence is consistent with representative democracy.
False
T or F: Central banks act only during times of crisis.
False
T or F: Fiscal policymakers tend to take a long-term view of the economy.
False
T or F: High inflation is good for growth.
True
T or F: No bank, no matter how well-managed, can withstand a run.
True
T or F: Notes issued by a central bank were considered safer than those of smaller banks.
True
T or F: Printing money is a very profitable business.
True
T or F: Successful monetary policy requires a long time horizon.
False (issues it)
T or F: The Fed *physically* creates money.
True
T or F: The ability to create money means the Fed can lend money when no one else can.
True
T or F: The idea of central bank independence is a new one.
True
T or F: Today every central bank announces its policy actions almost immediately.
False
T or False: Thomas Jefferson supported BUS I.
securities markets, government's budget
The Fed does NOT control _______ _______ or the _________ __________.
cotton
The falling price of _________ and BUS II's failure to intervene caused caused Tennessee banks and farmers to fail, unable to pay their mortgages.
welfare, risk
The job of the central bank is to improve general economic ________ by managing and reducing systematic _____.
independent, committee, accountable, transparent, goals
To be successful, a central bank must be (1) ________ from political pressure, (2) make decisions by _________, (3) _____ to the public and __________; and (4) operate within its ______.
True
True of False: The Bank of North America could print bank notes, convertible to specie.
True
True or False: All banks have an account at the central bank.
False
True or False: During the Wildcat Era, it was relatively easy for depositors to withdraw their cash.
True
True or False: The Louisiana Purchase hurt the U.S. economy.
False
True or False: There were no non-uniform currencies after the National Uniform Currency Act of 1864.
Robert Morris
U.S. Director of Finance who oversaw the creation of the Bank of North America
bankruptcy
What nearly happened to the federal government during the interim period, during which they lacked a fiscal agent to collect taxes and pay bills?