Econ 2200 Chpt 19 notes

Econ 2200 Chpt 19 notes - Econ 2200 Chpt 19 1 Reunification...

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Econ 2200 Chpt. 19 1.) Reunification Era: Money and Banking after the Civil War I. Introduction: 2 Key Issues 1. Deflation: in the late 1800’s Fractional reserves: Commercial Banks hold a fraction of money deposited and lend the other A. Money and the Price-Level Impact of late-19th century deflation: Unanticipated deflation can benefit lenders and harm borrowers . Allows for greater purchasing power Bimetallic standard Coinage Act of 1792 ( existed officially until 1900, when gold standard was adopted by Congress): Established both gold and silver as official monetary units of the US. Thus, the Federal government mint issued both gold and silver coins of equal monetary value. Mint (monetary) value v. Market (bullion) value By 1834 Market value was 16(sliver): 1(gold) Sliver was “over valued ” at the mint level, and gold was “undervalued ” at the mint level. =’s defacto silver std! Thus people would hoard-hold on to- gold and only use silver as money. Problem with bimetallic standard: whenever the market value deviates from mint value, only the metal that is overvalued at the mint will circulate as money; thus the bimetallic std was typically a monometallic std in practice!
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In 1912, Congress appointed National Monetary Commission. NMC's report 1.) denounced entire US banking system 2.) listed 17 points of “gross deficiency” 3.) called for establishment of a central bank- ultimately this leads to the creation of the Federal Reserves System in 1914 II. The Dual Banking System A. Recall Econ 2105: In a fractional reserve banking system, commercial banks create money .- through accepting deposits and dishing out loans (NB = national bank; SB = state bank) NBs & SBs issued their own bank notes. No interstate branch banking allowed. : both national and state banks! Regardless of whether charter issued by a state or by the federal govt, operations were limited to a single state. ---in 1994 finally allowed interstate banking Restrictions on branch banking limited the ability of commercial banks to acquire sufficient deposits to finance large (manufacturing) loans. Thus investment banking
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This note was uploaded on 09/21/2011 for the course ECON 2200 taught by Professor Moore during the Spring '07 term at UGA.

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Econ 2200 Chpt 19 notes - Econ 2200 Chpt 19 1 Reunification...

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