Question

Which explains the monetary policy weakness in the Articles of Confederation?

a) Lack of a national currency
b) Inability to levy taxes
c) Dependence on state-controlled currencies
d) Absence of a central banking system

Answer 1

The monetary policy weakness in the Articles of Confederation can be attributed to the lack of a national currency, inability to levy taxes, and absence of a central banking system.

Step-by-step explanation:

The monetary policy weakness in the Articles of Confederation can be explained by multiple factors:

1. Lack of a national currency: The central government issued a currency called the Continental, which lost its value, making people reluctant to use it. Additionally, states were allowed to issue their own state-controlled currencies, further undermining the value and acceptance of the national currency.
2. Inability to levy taxes: The national government lacked the power to impose taxes, leaving it dependent on the states for funding. This led to a lack of sufficient funds for the central government to pay its debts and conduct foreign affairs.
3. Absence of a central banking system: The Articles of Confederation did not establish a central banking system. This allowed numerous state banks to issue their own banknotes, which often lacked acceptance due to uncertainty about their reputation.

These weaknesses in the monetary policy of the Articles of Confederation significantly hindered the young nation's economy and its ability to effectively manage its finances and currency.