Money and Banking Midterm Exam Preparation F/21
Explain your responses carefully and thoroughly with examples for full credit. Each question involves multiple levels of response: some surface descriptions and some deeper ramifications. Please use examples from the lectures and readings. Five of the following 10 questions will be asked in class for written responses, with 20 points awarded for each depending on the thoroughness of your analysis.
- Explain why and how people originated the use of various commodities as a medium of exchange and why this was preferable to barter. Discuss the basic functions of a medium of exchange and the effect in advancing economic development.
- Explain the dispute of Isocrates and Passio in ancient Greece. Discuss the fundamental difference between deposits for safekeeping (demand) and deposits for loan (time). Discuss the impact this dispute can have on economic calculation and development.
- Explain the problem of the debasement of money in history. Discuss how this occurred and why some are favored while others are hurt by this. Discuss the redistributive effects of debasement and the impact on economic development. Explain how this is related to the ongoing debate over the impact of inflation and deflation.
- Explain the origins of usury in history and the moral and legal roots of usury prohibitions. Discuss the positive and negative effects that usury laws (prohibitions) and the theory of the “just price” have had on economic development. Discuss how some people were favored while others were hurt by these concepts and why.
- Discuss the Knights Templar in creating international banking and what became of them and why. Discuss how the Medici family was able to circumvent the ban on usury, how they developed multinational banking, and what became of them.
- Explain the origins and practice of fractional reserve banking. Discuss how this is related to the expansion/contraction of credit and to the business cycles throughout the history of Europe. Discuss the experience of John Law, the Mississippi Company, and the King of France in this history.
- Explain how the Bank of Amsterdam differed from the Bank of England. What were the privileges that gave significance to the Bank of England. Explain why and how the Suffolk Bank of Boston served the functions of a free market central bank before the U.S. Civil War.
- Explain the origin and consequences of the creation of paper notes as substitutes for money in the Massachusetts Colony during the French and Indian Wars. Discuss the role this played in influencing money practices of the American colonies through the era of the Revolution and early U.S. economic development.
- Explain how government finance may have influenced the history of warfare and infrastructure construction for transportation in the U.S. How does the type of finance influence the nature of warfare and the type and extent of infrastructure development that is undertaken. Discuss the winners and losers of these practices and why the ultimate impact on economic development is positive or negative and why.
- Explain the controversy behind the efforts to create a central bank in the U.S. Discuss the particular individuals who most inspired the Federal Reserve System, the circumstances behind the creation of the Federal Reserve Act of 1913, and the aftermath of economic development in the two decades immediately following its creation.