ECON2200 Ch 19

ECON2200 Ch 19 - Reunification Era: Money & Banking...

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I. Introduction: 2 Key Issues : 1. Deflation- why was the country experiencing deflation during this period? Deflation (changes in the price level) is always connected to changes in the money supply! 2. Bank failures and bank panics (period with a lot of commercial bank failures rather than investment bank failures) A. Money and the Price-Level Impact of late-19th century deflation *Remember: unanticipated deflation is good for lenders and bad for borrowers* The group of borrowers in the late-19 th century that was particularly upset about this was farmers. Bimetallic standard o Coinage Act of 1792 Officially abolished in 1900 by the Gold Standard Act. The Coinage Act established both gold and silver as the official monetary units of the U.S. This meant that the federal government (“The Mint”) coined gold and silver coins of equal monetary value i.e. if there’s a $1 coin for gold, there is also a $1 coin for silver. However, unless the market prices of gold and silver were exactly equal (which they weren’t) at the time of coinage (based on the 1972 Mint value), then the coins would have to be of different weights. The original Mint value (1792)- 15 : 1 (silver : gold) … Therefore, in 1792, gold was 15 times more valuable than silver. Problem: as soon as the market price changes, there is a huge problem. And the market price DID change. o Mint value v. Market value Whenever the market value (as bullion) did not equal the mint value (as money), only one metal would circulate as money. Which
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ECON2200 Ch 19 - Reunification Era: Money & Banking...

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