Economics 353 Lecture 17

Economics 353 Lecture 17 - Economics 353 Lecture 17 Money...

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Economics 353 Lecture 17 Money and Banking After the Civil War
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The Fed The Federal Reserve System is known as the Fed. Is it necessary? Has it helped reduce the severity of business cycles? Is it a democratic institution? Should it be a democratic institution?
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The Fed What does the Fed do? What does it control? Is it efficient? What is the relationship between Fed actions and the exchange rate?
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Civil War changes The Civil War changed the US monetary system profoundly. North issued paper money “greenbacks” to finance the war causing inflation and causing it to leave the gold standard. National Banking Acts of 1863 and 1864 established a national currency.
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National Banking Act 1864 5+ people could obtain a national banking charter. Banks in cities of 50,000+ had to be capitalized at $200,000 or more. Banks in cities of 6,000 to 50,000 needed $100,000 in capital – Banks in cities of less than 6,000 needed $50,000 in capital
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National Banking Act of 1864 One-third of the capital (at least $30,000) had to be in government bonds and deposited with the controller of the currency. Banks got bank notes worth Minimum(90% of par, market value of bonds).
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Supply of bank notes If the market value of the bonds is less than 90% of par value, then supply of notes increases as the market value of the bonds increases – in other words, when interest rates go down.
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This note was uploaded on 09/20/2011 for the course ECO 353 taught by Professor Johnrizzo during the Spring '11 term at SUNY Stony Brook.

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Economics 353 Lecture 17 - Economics 353 Lecture 17 Money...

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