Final answer:
The correct answer is option b) The Union financed the War through loans from domestic sources, while the Confederacy used its own resources.
Step-by-step explanation:
During the American Civil War, financing the war was a significant challenge for both the Union and the Confederacy. The Union, led by Abraham Lincoln and advised by Treasury Secretary Salmon P. Chase, financed the war through a combination of loans, treasury notes, and taxes. By leveraging the credibility of its government and with the established treasury and source of income, the Union could secure credit from European banks and domestic investors. Almost 65 percent of the war was funded through loans and bonds that were marketed effectively by Jay Cooke to both wealthy financiers and the general northern populace.
In contrast, the Confederate government, lacking a solid financial base and the extensive credit of the North, primarily relied on treasury notes to fund its wartime expenses. They also attempted to use loans and taxes, but these were considered too risky in the fragile Confederate economy. As the war progressed, the Confederacy's financial instruments led to high levels of inflation, adding to their economic troubles.
Both governments also had to manage the economic impact of their financing decisions, with the Union able to support the war while promoting economic growth, whereas the Confederacy struggled with a greater negative impact on its economy due to its reliance on printing money.