ECON 2200 Moore 3

ECON 2200 Moore 3 - 87-157-3ECON 2200 Moore Test...

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Unformatted text preview: 87-157-3ECON 2200 Moore Test #3MondayOctober 15Recall that following the Civil War, money included state bank notes, national bank notes, greenbacks, demand deposits, and bimetallic coins. Also recall that under a bimetallic standard, only the metal that is overvalued at the mint will circulate as money. In the 1870s, silver was worth around 3% more on the bullion market than it was at the mint.The dominant issue of the late 1800s became that of what kind of monetary system the US should have. Dr. Moore put Figures 19.1 and 19.2 on the projector.Both figures support many of the issues of the time that we’ve learned about – 19.1 shows the de facto gold standard, greenbacks and national bank notes being issued in the Civil War, a decrease in gold value and an increase after 1895. Figure 19.2 shows wholesale prices and the cost of living. The graph shows that both increase with the civil war and decline afterward due to the deflation we’ve learned about in the previous two tests. Student Notes™ • Reproduction Prohibited.187-157-3Inflation from 1860-65 was due to the Civil War. There was a rise in US prices in relation to international prices because of the USA’s efforts to finance the war. This rise in the domestic price level made imports more attractive here in the United States and made exports (from the US) less attractive abroad. As the price level was sustained, the United States began to suffer from a trade deficit.The US bought more than it sold to other countries and used gold to pay instead of the highly inflationary dollar. This large outward movement of internationally-recognized gold from the US was the most dangerous result of the trade deficit.This lack of gold led the US to suspend specie payment (gold payment on greenbacks), thus, Greenbacks were a fiat currency.YearU.S. PricesBritish PricesPrice (in USD) of 1 British Pound1861100100$4.771865176105$7.691873129113$5.55187910496$4.85Notice the trade deficit in the above table, noted in the columns “US prices” and “British prices.” After 1865, the trade imbalance is apparent, though it is somewhat mitigated by 1879 due to the increasing value of British Pounds. Student Notes™ • Reproduction Prohibited.287-157-3To resume specie payment, US prices would have had to decrease in order to stop the outflow of gold. Recall how unanticipated inflation impacts people: It is bad for borrowers and good for lenders. Both political parties of the time, Democrats and Republicans, agreed that the price level should be lowered and that specie...
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This note was uploaded on 03/20/2008 for the course ECON 2200 taught by Professor Moore during the Fall '07 term at UGA.

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ECON 2200 Moore 3 - 87-157-3ECON 2200 Moore Test...

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