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?