The National Bank Act was Passed in 1864 GMAT Reading Comprehension

Reading passage question

The National Bank Act was passed in 1864 to provide a uniform currency, to eliminate the overissuance of bank notes, and to create a market for government bonds. Up to this point, the United States had some 1,500 state banks issuing their own notes, which circulated as money—not government money, but bank money. At the time of the Civil War, there were about 7,000 different types of legitimate bank notes in circulation, to say nothing of several thousand kinds of counterfeit notes. Thus, conditions were confusing, and businessmen—among others—demanded a uniform currency. Also, during the Civil War, the Union was having trouble selling its bonds, at least until Jay Cooke took them off its hands. Thus, in answer to its problems and those of businessmen, the government enacted the National Banking Act.

This Act permitted five or more persons to charter a national bank, the charter being issued by the federal government. The bank’s capitalization depended upon the size of the town in which the bank was located, with the capitalization level going higher for larger cities. For example, banks in towns of less than 6,000 people had to have a minimum capitalization of $50,000; banks in cities of 50,000 people or more had to have a minimum capitalization of $200,000.

Upon passage of the Act, it was felt that there would be a rush of state banks to take out national charters. At first, however, most state banks kept their state charters. A fair number of them had traditional, respected names, and they had no wish to exchange them for names like the First National Bank of Chicago. Other state banks, of course, stood to gain in prestige and customer confidence by making a name change, and so they switched over. The federal government, in any way, was determined to do away with the heterogeneous note issues of state banks and, to do so, in 1865 placed a prohibitive tax of 10% per year on state bank notes. The tax was effective. Not only were state bank notes made unprofitable and driven out of circulation, but a majority of state banks immediately shifted over to federal jurisdiction. Those banks that retained state charters were, for the most part, banks in big cities which had been rapidly replacing their notes with check transactions, anyway. So checks, based on bank deposits, displaced state bank notes as the most convenient form of money in state banks, and the use of checks did much to save the stronger state banks after 1865.

“The National Bank Act was passed in 1864 GMAT Reading Comprehension.”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 6 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analysing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Solution and Explanation

Question 1
Which of the following can be inferred about the period prior to 1864?

(A) There was not a federal tax on state bank notes.
(B) Most small town banks were capitalized with less than $50,000.
(C) State banks relied heavily on check transactions.
(D) Bank notes were issued more often than was ideal.
(E) The capitalization of a bank was directly correlated to the size of the town or city it was in.

Question 2
Which of the following can be logically deduced from the passage?

(A) Prior to 1864, some state banks issued more than one type of bank note.
(B) The National Bank Act decreased the number of counterfeit bank notes in circulation.
(C) Had Jay Cooke not purchased Union Civil War bonds, the Union would have been unable to sell them.
(D) Up until the National Bank Act, counterfeiting bank notes was a profitable enterprise
(E) The majority of businessmen were pleased by the passage of the National Bank Act.

Question 3
Which of the following can be inferred from the passage?

(A) A national bank with an initial capitalization of $50,000 in 1864 must have been located in a city of less than 6,000 residents.
(B) A national bank with an initial capitalization of $225,000 would be guaranteed a federal charter regardless of location.
(C) A national bank with an initial capitalization of $250,000 in 1864 must have been located in a city of more than 50,000 residents.
(D) A national bank located in a city with 40,000 residents must have had an initial capitalization of between $50,000 and $200,000.
(E) A national bank with an initial capitalization of $45,000 would not have received a charter from the federal government.

Question 4
According to the passage, a large state bank In New York City would most likely take which of the following actions following the passage of the National Bank Act?

(A) Immediately give up its state charter and adopt the national currency
(B) Switch its name to increase consumer confidence
(C) Stop issuing state bank notes in order to increase prestige
(D) Continue to increase its use of checks
(E) Demand that the federal government reduce its state note tax

Question 5
Which of the followed can be inferred from the passage about the National Bank Act of 1864?

(A) It would not have met its goals without additional legislation
(B) It reduced the problem of bank note counterfeiting
(C) It increased convenience for banking customers by requiring checks
(D) It increased the market for government bonds
(E) It contributed to a more homogenous national currency

Question 6
The primary purpose of the passage is to:

(A) Describe the requirements that the National Bank Act placed on banks.
(B) Detail the effects that the passage of the National Bank Act had on the American financial system.
(C) Present the reasons for and effects of a landmark piece of legislation.
(D) Argue that the National Bank Act was necessary for businesses to operate effectively.
(E) Demonstrate the superiority of checking-based banking over the issuance of state bank notes.

Suggested GMAT Reading Comprehension Samples

• Comparable Worth, as a Standard Applied to Eliminate Inequities in Pay GMAT Reading Comprehension
• The United States Government has a Long-Standing Policy of Using Federal Funds to Keep Small Business Viable. GMAT Reading Comprehension
• More Selective than Most Chemical Pesticides in that they Ordinarily Destroy only Unwanted Species GMAT Reading Comprehension
• Citing the Fact that the Real Gross Domestic Product (GDP) per capita was Higher in 1997 GMAT Reading Comprehension
• Historians have Identified Two Dominant Currents in the Russian Women's Movement of the Late Tsarist Period. GMAT Reading Comprehension
• Some Historians Contend that Conditions in the United States During the Second World War GMAT Reading Comprehension
• A Recent Study has Provided Clues to Predator-Prey Dynamics in the Late Pleistocene Era. GMAT Reading Comprehension
• Even More Than Mountainside Slides of Mud or Snow, Naturally Occurring Forest Fires Promote the Survival of Aspen Trees. GMAT Reading Comprehension
• The Black Death, a Severe Epidemic that Ravaged Fourteenth Century Europe GMAT Reading Comprehension
• The System of Patent-Granting, Which Confers Temporary Monopolies for the Exploitation of New Technologies GMAT Reading Comprehension
• The General Density Dependence Model can be Applied to Explain the Founding of Specialist Firms GMAT Reading Comprehension
• Many People Believe that Wages are Lower in Developing Countries than in Developed Countries GMAT Reading Comprehension
• Ethnohistoric Documents from Sixteenth-Century Mexico Suggesting that Weaving and Cooking were the Most Common Productive Activities for Aztec Women GMAT Reading Comprehension
• Solar Ponds are Bodies of Water in Which Circulation is Incomplete and There is a Very High Salt Concentration that Increases with Depth GMAT Reading Comprehension
• Traditional Social Science Models of Class Groups in the United States are Based on Economic Status GMAT Reading Comprehension
• Conventional Wisdom has it that Large Deficits in the United States Budget Cause Interest Rates to Rise. GMAT Reading Comprehension
• A One-Child Policy was Implemented in China in 1979 GMAT Reading Comprehension
• The Pioneers of the Teaching of Science Imagined that its Introduction into Education would Remove the Conventionality, Artificiality, and Backward-Lookingness GMAT Reading Comprehension
• A Fundamental Principle of Pharmacology is that all Drugs have Multiple Actions. Actions that are Desirable in the Treatment of Disease are Considered therapeutic GMAT Reading Comprehension
• In the 1980's, Astronomer Bohdan Paczynski Proposed a Way of Determining Whether the Enormous Dark Halo Constituting the Outermost Part of the Milky Way Galaxy GMAT Reading Comprehension