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Macroeconomics, 8e (Abel/Bernanke/Croushore)
Chapter 7 The Asset Market, Money, and Prices
7.1 What Is Money?
1) A disadvantage of the barter system is that

A) no trade occurs.
B) people must produce all their own food, clothing, and shelter.
C) the opportunity to specialize is greatly reduced.
D) gold is the only unit of account.
Answer: C
Diff: 1
Topic: Section: 7.1
Question Status: Previous Edition
2) The use of money is more efficient than barter because the introduction of money
A) reduces the need for economic specialization.
B) reduces the need to exchange goods.
C) reduces the need for other stores of value.
D) reduces transaction costs.
Answer: D
Diff: 1
Topic: Section: 7.1
3) In economics, money refers to

A) income.
B) wealth.
C) assets used and accepted as payment.
D) currency.
Answer: C
Diff: 1
Topic: Section: 7.1
4) moneys primary role in the economy comes from the benefits of lowering transactions costs
and allowing specialization. This function of money is called
A) store of value.
B) medium of exchange.
C) standard of deferred payment.
D) unit of account.
Answer: B
Diff: 1
Topic: Section: 7.1
1
Copyright © 2014 Pearson Education, Inc.
5) For something to satisfy the medium-of-exchange function of money, it must be
A) backed by gold.
B) readily exchangeable for other goods.
C) issued by a central bank.
D) an inherently valuable commodity.
Answer: B
Diff: 1
Topic: Section: 7.1
6) The following are all functions of money EXCEPT

A) medium of exchange.
B) store of value.
C) unit of account.
D) source of anxiety.
Answer: D
Diff: 1
Topic: Section: 7.1
Question Status: New
7) In some countries, prices in stores are listed in terms of U.S. dollars, rather than in units of the
local currency. That's most likely because
A) the country's political system is unstable.
B) interest rates are higher using U.S. dollars than using the local currency.
C) there is no other store of value.
D) the country has experienced high rates of inflation.
Answer: D
Diff: 1
Topic: Section: 7.1
8) The number of units of one good that trade for one unit of alternative goods can be determined
most easily when
A) there is one unit of account.
B) the goods all weigh about the same.
C) the goods are all new.
D) the goods are actively traded through barter.
Answer: A
Diff: 1
Topic: Section: 7.1
2
9) A good that is used as a medium of exchange as well as being a consumption good is called
A) a barter money.
B) a commodity money.
C) a legal tender.
D) a debased money.
Answer: B
Diff: 1
Topic: Section: 7.1
10) Why do people keep currency in their pockets when bank deposits pay interest?
A) Because banks might steal your money.
B) Because currency is more liquid.
C) Because bank deposits lose value due to inflation.
D) Because bank deposits lose value due to changes in interest rates.
Answer: B
Diff: 1
Topic: Section: 7.1
11) One of moneys primary roles in the economy comes from the use of money to transfer
purchasing power to the future. This role of money is called
A) store of value.
B) unit of account.
C) medium of exchange.
D) standard of deferred payment.
Answer: A
Diff: 1
Topic: Section: 7.1
12) Which of the following measures is the best measure of money as a medium of exchange?
A) M1
B) M2
C) M3
D) None of the above
Answer: A
Diff: 1
Topic: Section: 7.1
3
13) Suppose your bank raises its minimum-balance requirement for free checking on checking
accounts by $500. You take $500 out of your passbook savings account and put it in your
checking account. What is the overall effect on M1 and M2?
A) M1 rises by $500, M2 falls by $500.
B) M1 is unchanged, M2 is unchanged.
C) M1 rises by $500, M2 is unchanged.
D) M1 is unchanged, M2 falls by $500.
Answer: C
Diff: 3
Topic: Section: 7.1
14) M1 does not include

A) MMMFs.
B) travelers' checks.
C) currency.
D) transaction accounts.
Answer: A
Diff: 1
Topic: Section: 7.1
Question Status: Revised
15) Which of the following is not part of M1?

A) Transaction accounts
B) Checking accounts
C) Time deposits
D) Traveler's checks
Answer: C
Diff: 1
Topic: Section: 7.1
Question Status: Revised
16) Which of the following statements about M1 and M2 is true?

A) Demand deposits are not part of M1.
B) M2 is more liquid than M1.
C) M1 is larger than M2.
D) Savings deposits are part of M2.
Answer: D
Diff: 1
Topic: Section: 7.1
4
17) Which of the following statements about M1 and M2 is not true?
A) Transaction accounts are part of M1.
B) M2 is more liquid than M1.
C) M2 is larger than M1.
D) Transaction accounts are part of M2.
Answer: B
Diff: 2
Topic: Section: 7.1
18) M2 includes
A) large-denomination time deposits.
B) institutional MMMFs.
C) commercial paper.
D) M1.
Answer: D
Diff: 1
Topic: Section: 7.1
19) M2 does not include

A) Treasury bonds.
B) passbook savings accounts.
C) small-denomination time deposits.
D) M1.
Answer: A
Diff: 1
Topic: Section: 7.1
20) Over half of U.S. currency is

A) held abroad.
B) used in the underground economy.
C) held by banks as reserves.
D) held by businesses, especially retailers, for making transactions.
Answer: A
Diff: 1
Topic: Section: 7.1
5
21) People in other countries want to hold U.S. dollars as a
A) medium of exchange.
B) store of value.
C) unit of account.
D) standard of deferred payment.
Answer: B
Diff: 1
Topic: Section: 7.1
22) We shouldn't be concerned about U.S. currency held abroad because

A) the currency will never return to the United States.
B) foreigners use it to buy U.S. bonds.
C) it represents an interest-free loan to the United States.
D) foreigners can't spend it in their own countries.
Answer: C
Diff: 1
Topic: Section: 7.1
23) What's the most common way for a central bank to reduce the money supply?
A) Collect higher taxes
B) Sell bonds to the public
C) Buy bonds from the government
D) Buy bonds from the public
Answer: B
Diff: 1
Topic: Section: 7.1
24) Suppose you read in the paper that the Federal Reserve plans to expand the money supply.
The Fed is most likely to do this by
A) printing more currency and distributing it.
B) purchasing government bonds from the public.
C) selling government bonds to the public.
D) buying newly issued government bonds directly from the government itself.
Answer: B
Diff: 1
Topic: Section: 7.1
6
25) A developing country does not have enough taxes to cover its expenditures and is unable to
borrow. This government would be most likely to cover its deficit by
A) purchasing government bonds from the public.
B) selling government bonds to the public.
C) selling newly issued government bonds directly to the central bank.
D) buying newly issued government bonds directly from the central bank.
Answer: C
Diff: 2
Topic: Section: 7.1
26) What are the major components of M1? What are the major components of M2? Describe
each component.
Answer: The principal components of M1 are currency, transaction accounts, and traveler's
checks. Currency includes coins and Federal Reserve notes (i.e., paper money). Transaction
accounts are those against which checks may be drawn. Traveler's checks are a substitute for
currency that can be replaced if lost or stolen. The principal components of M2 are M1, savings
account deposits including money market deposit accounts (MMDAs), small time deposits, and
money market mutual funds (MMMFs). Small time deposits are certificates of deposit (CDs) of
less than $100,000 denomination. MMMFs invest their shareholders' funds in short-term
securities, pay market-based interest rates, and allow holders to write a limited number of
checks. MMDAs are like MMMFs, except they are offered by banks or thrift institutions such as
savings and loan associations.
Diff: 2
Topic: Section: 7.1
27) What function is money playing in each of these situations:

a. You walk into a store in Germany and see that all the prices are in euros.
b. You buy a candy bar for $1.25.
c. Your Aunt Jane keeps $100 bills tucked into many books in her house.
Answer: a. unit of account; b. medium of exchange; c. store of value.
Diff: 2
Topic: Section: 7.1
7
28) What happens to M1 and M2 due to each of the following changes?
(a) You take $500 out of your checking account and put it into a passbook savings account.
(b) You take $1000 out of your checking account and buy traveler's checks.
(c) You take $1500 out of your money-market mutual fund and deposit into your checking
account.
(d) You cash in $2000 in savings bonds and invest the money in a certificate of deposit.
Answer:
(a) M1 falls $500, M2 is unchanged (remember that M1 is part of M2).
(b) M1 and M2 are both unchanged.
(c) M1 rises $1500, M2 is unchanged.
(d) M1 is unchanged, M2 rises $2000.
Diff: 2
Topic: Section: 7.1
29) Why is per-capita U.S. currency demand so large? Who is holding large amounts of U.S.
currency and why are they doing so? Should U.S. policymakers be concerned about this? Why?
Answer: Currency demand is large mostly because foreigners hold many dollars. They do so
because of inflation or political instability in their countries. Policymakers shouldn't be very
concerned, since foreigners' dollar holdings represent an interest-free loan to the United States.
However, a cause for concern may be that fluctuations in our money supply may reflect
conditions abroad that are unrelated to the U.S. economy.
Diff: 1
Topic: Section: 7.1
7.2 Portfolio Allocation and the Demand for Assets
1) People's best guesses about returns on assets are called

A) expected returns.
B) liquidity.
C) risk.
D) the term structure of returns.
Answer: A
Diff: 1
Topic: Section: 7.2
2) The set of assets that a holder of wealth chooses to own is called

A) an asset assortment.
B) a wealth strategy.
C) a portfolio.
D) an investment envelope.
Answer: C
Diff: 1
Topic: Section: 7.2
8
3) The uncertainty about the return an asset will earn is
A) liquidity.
B) risk.
C) time to maturity.
D) stochastic dominance.
Answer: B
Diff: 1
Topic: Section: 7.2
4) The risk premium is

A) the amount by which the expected return on a risky asset exceeds the return on an otherwise
comparable safe asset.
B) a measure of the riskiness of the overall economy in a domestic country compared with a
foreign country.
C) the amount an investor must pay to insure his or her stock portfolio to protect against a fall in
value.
D) the amount an investment bank charges to guarantee an annuity that pays a fixed rate of
return in the future.
Answer: A
Diff: 1
Topic: Section: 7.2
5) The amount by which the expected return on a risky asset exceeds the return on an otherwise
comparable safe asset is known as the
A) CDS spread.
B) risk premium.
C) VIX.
D) term spread.
Answer: B
Diff: 1
Topic: Section: 7.2
6) The ease and quickness with which an asset can be exchanged for goods, services, or other
assets is its
A) risk.
B) time to maturity.
C) velocity.
D) liquidity.
Answer: D
Diff: 1
Topic: Section: 7.2
9
7) Time to maturity refers to the amount of time until
A) an asset repays the principal to an investor.
B) an asset pays interest for the first time.
C) a bond can be sold on the secondary market.
D) the yield curve shows an upward slope.
Answer: A
Diff: 1
Topic: Section: 7.2
8) Compared with money, bonds have

A) less risk and less liquidity.
B) less risk and more liquidity.
C) more risk and less liquidity.
D) more risk and more liquidity.
Answer: C
Diff: 1
Topic: Section: 7.2
9) AAA Company stock has a higher expected rate of return than ZZZ Company stock. All else
being equal, you would expect that relative to ZZZ, AAA company stock provides
A) less risk and less liquidity.
B) less risk and more liquidity.
C) more risk and less liquidity.
D) more risk and more liquidity.
Answer: C
Diff: 1
Topic: Section: 7.2
10) The least liquid asset on this list is

A) money.
B) bonds.
C) houses.
D) stocks.
Answer: C
Diff: 1
Topic: Section: 7.2
10
11) In the early 2000s, lenders began issuing mortgage loans to people who would normally not
be qualified to take out loans because they did not meet lending standards. Those borrowers are
known as
A) alternative borrowers.
B) weak borrowers.
C) subprime borrowers.
D) credit risks.
Answer: C
Diff: 1
Topic: Section: 7.2
12) The financial crisis occurred in 2008 in large part because of losses on securities consisting
of bundles of mortgage loans known as
A) home loan loss reserves.
B) credit default swaps.
C) mortgage-backed securities.
D) naked put options.
Answer: C
Diff: 1
Topic: Section: 7.2
13) A one-year bond has an interest rate of 5% today. Investors expect that in one year, a one
year bond will have an interest rate equal to 7%. According to the expectations theory of the term
structure of interest rates, in equilibrium, a two-year bond today will have an interest rate equal
to
A) 3.0%.
B) 5.0%.
C) 5.5%.
D) 6.0%.
Answer: D
Diff: 1
Topic: Section: 7.2
14) The idea that investors today compare the returns on bonds with differing times to maturity
to see which is expected to give them the highest return is the underlying principle behind the
________ of the term structure of interest rates.
A) expectations theory
B) investors' viewpoint analysis
C) segmented-markets theory
D) yield comparison theory
Answer: A
Diff: 1
Topic: Section: 7.2
11
15) The interest rate on long-term bonds is somewhat higher than suggested by the expectations
theory because
A) the expectations theory doesn't account for taxes.
B) a risk premium exists.
C) an inflation premium must be added to long-term bonds.
D) the Fed can only control short-term interest rates.
Answer: B
Diff: 1
Topic: Section: 7.2
16) By spreading her investments out over many different assets, an investor achieves
A) a higher expected return.
B) increased risk.
C) diversification.
D) greater liquidity.
Answer: C
Diff: 1
Topic: Section: 7.2
17) Suppose that you could buy a one-year bond today, which has an interest rate of 3%. If you
wait a year and buy a one-year bond then, the interest rate will be 4%. Two years from now, a
one-year bond is expected to offer an interest rate of 5%. According to the expectations theory of
the term structure of interest rates, what is the interest rate on a two-year bond today? What is the
interest rate on a three-year bond today?
Answer: Two-year bond: (3% + 4%)/2 = 3.5%; Three-year bond: (3% + 4% + 5%)/3 = 4%.
Diff: 2
Topic: Section: 7.2
12
18) Suppose that:
1) The interest on a one-year bond today is 3%;
2) The interest on a one-year bond starting one year from now is expected to be 4% per year;
3) The interest on a one-year bond starting two years from now is expected to be 5% per year;
4) The risk premium on a two-year bond is 0.5%; and
5) The risk premium on a three-year bond is 1.0%.
Use that information to answer the following questions.

a) According to the expectations theory, what is the interest rate today on a two-year bond?
Show your work.
b) According to the expectations theory, what is the interest rate today on a three-year bond?
Show your work.
c) Plot the yield curve.
Answer:
a) (3% + 4%)/2 + 0.5% = 4.0%
b) (3% + 4% + 5%)/3 + 1.0% = 5.0%
c) plot 3 points with 1, 2, and 3 years to maturity vs. yields of 3%, 4%, and 5%.
Diff: 2
Topic: Section: 7.2
7.3 The Demand for Money
1) A 10% decrease in real income usually leads to ________ in money demand.

A) an increase
B) no change
C) a decrease of less than 10%
D) a decrease of 10%
Answer: C
Diff: 1
Topic: Section: 7.3
2) A 5% increase in real income usually leads to ________ in money demand.

A) a decrease
B) no change
C) an increase of less than 5%
D) a decrease of 5%
Answer: C
Diff: 1
Topic: Section: 7.3
13
3) Which of the following is most likely to lead to a decrease of 10% in the nominal demand for
money?
A) An increase in real income of 5%
B) A decrease in real income of 5%
C) A decline of 10% in the price level
D) An increase of 10% in the price level
Answer: C
Diff: 2
Topic: Section: 7.3
4) Which of the following is most likely to lead to an increase of 1% in the nominal demand for
money?
A) An increase in real income of 0.5%
B) A decrease in real income of 0.5%
C) A decline of 1% in the price level
D) An increase of 1% in the price level
Answer: D
Diff: 2
Topic: Section: 7.3
5) The opportunity cost of holding currency decreases when

A) income decreases.
B) the interest rate on bonds decreases.
C) the interest rate on money decreases.
D) wealth decreases.
Answer: B
Diff: 1
Topic: Section: 7.3
6) An increase in the real interest rate would cause an increase in the real demand for money
A) no matter what the change in expected inflation.
B) if expected inflation fell by less than the rise in the real interest rate.
C) if expected inflation fell by the same amount as the rise in the real interest rate.
D) if expected inflation fell by more than the rise in the real interest rate.
Answer: D
Diff: 2
Topic: Section: 7.3
14
7) An increase in expected inflation is likely to cause
A) a decline in the demand for real balances.
B) an increase in the demand for real balances.
C) no change in the demand for real balances.
D) no change in the demand for real balances only if the income elasticity of real money demand
is zero.
Answer: A
Diff: 1
Topic: Section: 7.3
8) Mr. Pierpont has wealth of $200,000. He wants to keep at least $80,000 in bonds at all times,
and will shift $10,000 into bonds from his checking account for each percentage point that the
interest rate on bonds exceeds the interest rate on his checking account. If the interest rate on
checking accounts is 4% and the interest rate on bonds is 9%, how much does Mr. Pierpont keep
in his checking account?
A) $50,000
B) $70,000
C) $130,000
D) $150,000
Answer: B
Diff: 1
Topic: Section: 7.3
9) Mr. Pierpont has wealth of $200,000. He wants to keep at least $80,000 in bonds at all times,
and will shift $10,000 into bonds from his checking account for each percentage point that the
interest rate on bonds exceeds the interest rate on his checking account. Currently, he keeps
$100,000 in bonds, which pay him 7%. What is the current interest rate on checking accounts?
A) 5%
B) 7%
C) 9%
D) 10%
Answer: A
Diff: 1
Topic: Section: 7.3
15
10) Money demand is given by
Md/P = 1000 + .2Y - 1000i.
Given that P = 200, Y = 2000, and i = .10, real money demand is equal to
A) 1,300.
B) 1,500.
C) 260,000.
D) 300,000.
Answer: A
Diff: 2
Topic: Section: 7.3
11) Over time, the wealth of society increases and payments technologies get more efficient.
What is the effect on money demand of these two changes?
A) Money demand rises proportionately to the rise in wealth.
B) Money demand rises, but less than proportionately to the rise in wealth.
C) The overall effect is ambiguous.
D) Money demand declines.
Answer: C
Diff: 2
Topic: Section: 7.3
12) If there is a financial panic and increased uncertainty about the returns in the stock market
and bond market, what is the likely effect on money demand?
A) Money demand declines first, then rises when inflation increases.
B) Money demand rises.
Answer: B
Diff: 2
Topic: Section: 7.3
13) Suppose a new law imposes a tax on all trades of bonds and stock. What is the likely effect
on money demand?
A) Money demand declines first, then rises when inflation increases.
B) Money demand rises.
Answer: B
Diff: 2
Topic: Section: 7.3
16
14) If real income rises 4%, prices rise 1%, and nominal money demand rises 4%, what is the
income elasticity of real money demand?
A) 3/4
B) 4/5
C) 5/6
D) 1
Answer: A
Diff: 3
Topic: Section: 7.3
15) If real income rises 5%, prices rise 3%, and nominal money demand rises 7%, what is the
income elasticity of real money demand?
A) 3/4
B) 4/5
C) 5/6
D) 6/7
Answer: B
Diff: 3
Topic: Section: 7.3
16) If the interest elasticity of money demand is -0.1, by what percent does money demand
change if the nominal interest rate rises from 2% to 3%?
A) -0.1%
B) 5%
C) 0%
D) -5%
Answer: D
Diff: 2
Topic: Section: 7.3
17) If the income elasticity of money demand is 3/4 and the interest elasticity of money demand
is -1/4, by what percent does money demand rise if income rises 10% and the nominal interest
rate rises from 4% to 5%?
A) 7.50%
B) 6.25%
C) 5.00%
D) 1.25%
Answer: D
Diff: 3
Topic: Section: 7.3
17
18) Velocity is defined as
A) nominal money stock/nominal GDP.
B) nominal GDP/nominal money stock.
C) real money stock/real GDP.
D) mc2.
Answer: B
Diff: 1
Topic: Section: 7.3
19) If real GDP is $4 billion, the price level is 1.25, and the nominal money stock is $500
million, then velocity is
A) 0.1.
B) 1.
C) 10.
D) 100.
Answer: C
Diff: 2
Topic: Section: 7.3
20) Money demand is given by

Md/P = 1000 + .2Y - 1000i.
Given that P = 200, Y = 2000, and i = .10, velocity is equal to
A) 0.65.
B) 0.75.
C) 1.33.
D) 1.54.
Answer: D
Diff: 2
Topic: Section: 7.3
21) Suppose velocity is 3, real output is 9000, and the price level is 1.5. What is the level of real
money demand in this economy?
A) 2000
B) 3000
C) 6000
D) 30,000
Answer: B
Diff: 2
Topic: Section: 7.3
18
22) Suppose real money demand is 1000, real output is 6000, and the price level is 200. What is
the level of velocity in this economy?
A) 2
B) 3
C) 6
D) 12
Answer: C
Diff: 2
Topic: Section: 7.3
23) Suppose velocity is constant at 4, real output is 10, and the price level is 2. From this initial
situation, the government increases the nominal money supply to 6. If velocity and output remain
unchanged, by how much will the price level increase?
A) 2.4%
B) 20%
C) 24%
D) 50%
Answer: B
Diff: 3
Topic: Section: 7.3
24) What happens to real money demand (rise, fall, no change) due to a change in each of the
following factors?
(a) A tax on stock market transactions is introduced.
(b) Computerized bond trading reduces transactions costs.
(c) People's average level of wealth rises.
(d) The threat of a recession increases the riskiness of stocks and bonds.
(e) The interest rate paid on checking account balances declines.
(f) The price level falls in a one-time jump.
Answer:
(a) Rises
(b) Falls
(c) Rises
(d) Rises
(e) Falls
(f) Is unchanged
Diff: 1
Topic: Section: 7.3
19
25) Give five examples of factors that could reduce the demand for money.
Answer: Lower price level, lower real income, higher real interest rate, higher expected
inflation, lower nominal interest rate on money, lower wealth, lower risk on alternative assets,
higher risk on money, increased liquidity of alternative assets, or increased efficiency of
payments technologies.
Diff: 2
Topic: Section: 7.3
26) Suppose the money demand function is

Md/P = 1000 + 0.2Y - 1000 (r + πe).
(a) Calculate velocity if Y = 2000, r = .06, and πe = .04.
(b) If the money supply (Ms) is 2600, what is the price level?
(c) Now suppose the real interest rate rises to 0.11, but Y and Ms are unchanged. What happens
to velocity and the price level? So if the nominal interest rate were to rise from 0.10 to 0.15 over
the course of a year, with Y remaining at 2000, what would the inflation rate be?
Answer:
(a) V = PY/M = Y/(M/P). From the money demand function, M/P = 1300. So V = 2000/1300 =
1.54.
(b) P = Ms/( Md/P) = 2600/1300 = 2.
(c) Now Md/P = 1250. So V = 2000/1250 = 1.6. P = Ms/(Md/P) = 2600/1250 = 2.08. The
inflation rate would be 4%.
Diff: 3
Topic: Section: 7.3
7.4 Asset Market Equilibrium
1) Under a situation of asset market equilibrium,

A) the quantity of money supplied equals the quantity of money demanded.
B) the quantity of money supplied equals the quantity of nonmonetary assets demanded.
C) the quantity of nonmonetary assets supplied equals the quantity of monetary assets demanded.
D) the quantity of money supplied equals the quantity of nonmonetary assets supplied.
Answer: A
Diff: 1
Topic: Section: 7.4
20
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title-deeds for the most magnificent piece of empire obtained
this century by any European Power,—a dominion which, though
'in partibus infidelium,' is yet within easy reach of both the
western and the southern shores of France. We do not grudge
France the great possession that was finally rounded off and
consolidated on Tuesday; nay, rather we are glad to see it in
her hands, for we want monopoly neither in trade nor in
empire. We see, however, no good in pretending that she has
not obtained the most magnificent opportunity for over-sea
development which has fallen to any Power within recent times.
The best way of understanding the Convention is to realise
what it is that France now possesses in West Africa. Let our
readers look at a map of Africa, and first fix their eyes on
Algiers and Tunis, with their rich soil and splendid harbours
and their remains of an ancient and splendid
civilisation,—Phœnician, Greek, Roman, Christian, and Arab.
Then let them allow their eyes to travel downwards to the
right bank of the greatest river of Africa, the Congo. From
Constantine, with its great memories and its scenery almost
European in charm and splendour, to Brazzaville and Stanley
Pool, with their tropical vegetation and savage life, there is
a continuous and uninterrupted stretch of French territory. As
they say in our country districts, the French President might now
ride on his own land from Tunis to Loango. The French dominion
of West Africa (as says an official 'communique' to the Paris
Press with very natural exultation) now extends over a space
as great as that from Paris to Moscow. From Algeria to the
Congo, from Senegal to Lake Chad—i. e., almost to the centre
of Africa—stretches this vast tract of French territory. 'At
the present moment,' to quote the words of the 'communique,'
'all our West African colonies—Algeria, Tunis, Senegal,
Futa-Jallon, the Ivory Coast, the Soudan, and the Congo—are in
communication by their respective Hinterlands.'
{335}
"But probably this will not convey much to the ordinary

English reader. Perhaps we can best make him realise the
immensity of the French West African Empire by pointing out
that, with the exception of certain great German and English
and other 'enclaves' the whole of the huge piece of Africa
which bulges out on the map towards the west now belongs to
France. She has all the connecting links, all that does not
specifically belong to some one else, and she cuts off short
the Hinterlands of all the Powers with possessions on the West
African coast. Let us begin at the most western point of the
coast-line of Tripoli in the Mediterranean, and travel round
the coast, marking off all that is not French.
"First, we come to Tunis,—that is in the possession of France

just as Egypt is in our possession. Algiers comes next,—that
is French. Then Morocco. Morocco is at present independent,
but at the back of Morocco all the land, be it desert or
cultivable, is French. Next comes a strip of Spanish coast,
but it goes only a very little way inland, and all the back
country is French. Next come the great French colonies of
Senegambia and Futa-Jallon, with two little colonies embedded
in them, one belonging to us—the Gambia—and the other
belonging to Portugal. Next come our Sierra Leone and
independent Liberia, but here again the Hinterlands are all
French. Next comes the French Ivory Coast colony, then the
British Gold Coast, then German Togoland, and then French
Dahomey. Here again all the Hinterlands beyond, say, four
hundred miles inland, belong, since the signing of the
Convention, to France. After that comes our Colony of Lagos,
then the German Cameroons, and finally the French Congo—the
last French possession in West Africa. Here, too, the
Hinterlands have been cut off by the French, and our Colonies
have been made into 'enclaves' in the mighty French dominion.
It is true that the Niger or Lagos 'enclave' is a very vast
one, and stretches now up to Lake Chad, which becomes
henceforth as international a sheet of water as the Lake of
Constance. Still, it is an 'enclave,' for, as we read the
Convention, he who embarks upon Lake Chad from the British
shore and steers eastward will land on French territory. In
other words, Nigeria cannot now cross Lake Chad and expand
beyond it. We should be glad to hear that this is not the true
reading of the Convention, but we fear it is. We have
travelled, then, round the map of Africa, from Tunis to the
Congo, and found that France is everywhere the chief owner,
—that hers is the great estate, and that the other Powers only
have odd bits of land here and there. We do not say this in
any grumbling spirit, for our odd bit—Nigeria—is very possibly
worth as much as the great estate if Algiers and Tunis are not
counted. We merely wish to make the public understand clearly
that West Africa as a political and geographical expression
has finally passed to France, though we no doubt have carved
one very valuable piece out of it."
The Spectator (London)

June 18, 1898.
Nine months later, when the agreement embodied in the

Declaration of March 21, 1899, had been added to the Original
convention, the "Spectator" explained its effect as follows:
"It will be remembered that last year we and the French agreed
upon a delimitation of 'spheres' in West Africa which extended
as far as Lake Chad. As to the country east of Lake Chad
nothing was said. It was left as a kind of No-man's Land. What
has now been done is to extend the area of the French 'sphere'
eastward beyond Lake Chad till it reaches Darfur and the
Bahr-el-Ghazel. Darfur and the region of the Bahr-el-Ghazel
are declared to be in the English 'sphere.' All the rest of
Northern Central Africa is to become French. France, that is,
is to have the great Mahommedan State of Wadai as well as
Baghirmi and Kanem. In the territory between Lake Chad and the
Nile each Power, however, is to allow the other equality of
treatment in matters of commerce. This will no doubt allow
France to have commercial establishments on the Nile and its
affluents, but it will also allow us to have similar
privileges for trade on the eastern shore of Lake Chad. But as
our system of giving equal trading rights to all foreigners
would in any case have secured commercial rights to France, we
are not in the least hampered by this provision, while the
concession to us of equal rights on the eastern shore of Lake
Chad will improve our position in the face of French Colonial
Protection. …
"The first thing that strikes one in considering the French

possessions in Africa, after this latest addition, is their
vastness. Practically, France will now have all North-Western,
and all Northern, and all North Central Africa, except
Morocco, our West African Colonies, Tripoli, Darfur, and the
Valley of the Nile,—giving that phrase its widest
interpretation, and regarding it as the whole of the country
whence water flows into the Nile. … That, if she plays her
cards properly, she ought to make a success of her African
Empire we cannot doubt, for she starts with immense
advantages. To begin with, she is nearer her African
possessions than any other Power. You can go in a couple of
days from Marseilles to Algiers and Tunis. Next, in Algiers
and Tunis she has rich colonies with a temperate climate which
may be made the basis for great developments in the way of
railway extension. Lastly, her African possessions are
conterminous, or, at any rate, connected with each other by
land. She owns, that is, Northern Africa, and the rest of the
Powers have only, as it were, enclaves—very large enclaves, no
doubt, in many cases—in her territory. At present this
advantage may not seem very great owing to the vast distances
and the desert character of many of the French Hinterlands,
but if and when France completes her Soudan railways, the
strength of this continuity of territory will become apparent.
But though France has many advantages, it would be foolish to
deny that she has also many serious problems to solve. We
shall perhaps be stating the most dangerous of them when we
say that France now becomes the undisputed master of the great
sect of El Senoussi. There are reported to be over twenty
million followers of El Senoussi in North Africa, and, except
in Tripoli, an these may now be said to be within the French
'sphere of influence.' The Sultanate of Wadai—which, be it
remembered, is a very formidable State, and one which has
never yet come into contact with any European Power—is a
Senoussi State. But the followers of the Senoussi, besides
being numerous, are extremely fanatical. Though practising a
much purer form of Mahommedanism than the Dervishes, they hate
Europeans quite as ardently, and if once their religious zeal
were to be thoroughly roused they would prove most formidable
foes. We do not envy the French their task if they attempt to
conquer Wadai."
The Spectator, March 25, 1899.
{336}
NIGERIA: A. D. 1897:
Massacre of British officials near Benin.
Capture of Benin.
An unarmed expedition from the Niger Coast Protectorate,
going, in January, on a peaceful mission to the King of Benin,
led by Acting Consul-General Phillips, was attacked on the way
and the whole party massacred excepting two, who were wounded,
but who hid themselves in the bush and contrived to make their
way back. The Consul-General had been warned that the king
would not allow the mission to enter Benin, but persisted in
going on. A "punitive expedition" was sent against Benin the
following month, and the town was reached and taken on the
18th, but the king had escaped.
"The city presented the most appalling sight, particularly

around the King's quarters, from which four large main roads
lead to the compounds of the bigger Chiefs, the city being
very scattered. Sacrificial trees in the open spaces still
held the corpses of the latest victims[of 'Ju Ju'
sacrifice]—seven in all were counted—and on every path a
freshly-sacrificed corpse was found lying, apparently placed
there to prevent pursuit. One large open space, 200 to 300
yards in length, was strewn with human bones and bodies in all
stages of decomposition. Within the walls, the sight was, if
possible, more terrible. Seven large sacrifice compounds were
found inclosed by walls 14 to 16 feet high, each 2 to 3 acres
in extent; against the end wall in each, under a roof, was
raised a daïs with an earthen (clay) sacrificial altar about
50 feet long close against the wall on which were placed the
gods to whom sacrifice is made—mostly being carved ivory
tusks, standing upright, mounted at base, in hideously
constructed brass heads. In front of each ivory god was a
small earthen mound on which the victim's forehead would
apparently be placed. The altars were covered with streams of
dried human blood and the stench was too frightful. It would
seem that the populace sat around in these huge compounds
while the Ju Ju priests performed the sacrifices for their
edification. In the various sacrifice compounds were found
open pits filled with human bodies giving forth most trying
odours. The first night several cases of fainting and sickness
occurred owing to the stench, which was equally bad
everywhere. In one of the pits, partially under other bodies,
was found a victim, still living, who, being rescued, turned
out to be a servant of Mr. Gordon's, one of the members of Mr.
Phillips' ill-fated expedition. At the doors and gates of
houses and compounds were stinking goats and fowls, sacrificed
apparently to prevent the white man entering therein. The
foregoing is but a feeble attempt to describe the horrors of
this most terrible city, which after five days' continuous
fatigue, working with about 1,000 natives, still presents most
appalling and frightful sights. In the outlying parts of the
city the same sights are met and the annual expenditure of
human life in sacrifice must have been enormous. Most of the
wells were also found filled with human bodies."
Great Britain,
Papers by Command: Africa, Number 6, 1897, page 28.
Subjugation of Fulah slave-raiders.
See (in this volume)

AFRICA: A. D. 1897 (NIGERIA).
Transfer to the British Crown.
The Royal Niger Company transferred its territories to the

crown in July, 1899, receiving the sum of £865,000. It was
announced to Parliament that three governments would be
formed, named North Nigeria, South Nigeria, and Lagos.
NILE, Barrage and reservoir works on the.

EGYPT: A. D. 1898-1901.
NILE VALLEY: The question of possession.

EGYPT: A. D. 1898 (SEPTEMBER-NOVEMBER).
NINETEEN HUNDRED, The Universal Jubilee of.

PAPACY: A. D. 1900.
----------THE NINETEENTH CENTURY: Start--------
NINETEENTH CENTURY:
The date of the ending of the Century.
Controversy as to whether the Nineteenth Century came to its

end at the ending of the year 1899 or the year 1900 seems
nearly incomprehensible to one who takes the trouble to begin
a counting of years from the beginning of the Christian Era,
and so reaches in his reckoning the fact that the first
century did not end until the 100th year was ended. That seems
to clear all confusion from the question, since the 200th,
300th, 400th, and so on up to the 1900th, must be the closing
years of the successive centuries, just as certainly as the
100th is the last year of the first century. Arithmetically,
there is no question left; but some minds refuse to recognize
the century as a merely arithmetical fact. They see in it an
entity of time with which the counting of years has little to
do. Their somewhat mystical view is set forth in the
following, which we quote from a communication that appeared
in the "New York Times":
"The centurial figures are the symbol, and the only symbol, of
the centuries. Once every hundred years there is a change in
the symbol, and this great secular event is of startling
prominence. What more natural than to bring the century into
harmony with its only visible mark? What more consonant with
order than to make each group of a hundred years correspond
with a single centennial emblem? Be it noticed that, apart
from the centennial emblems, there is absolutely nothing to
give the centuries any form. The initial figures 18 are time's
standard which the earth carries while it makes 100 trips around
the sun. Then a new standard, 19, is put up. Shall we wait now
a whole year for 1901, at the behest of the abacists? No, we
will not pass over the significant year 1900, which is stamped
with the great secular change, but with cheers we will welcome
it and the new century. The 1900 men, who compose the vast
majority of the people, say to their opponents: 'We freely
admit that the century you have in your mind, the artificial
century, begins in 1901, but the natural century (which we
prefer) begins in 1900.'"
{337}
A consistent application of this view to the defining and

naming of the centuries would seem to require that the years
which carry the initial figures 18 should make up the
Eighteenth, not the Nineteenth Century, and that we should
turn back our centurial nomenclature a whole round.
NINETEENTH CENTURY:
The epoch of a transformation of the world.
In the last years of the Eighteenth Century a new epoch in

history was entered,—an epoch marked by many distinctions, but
most strikingly by what may be called the transformation of
the world. The earlier great ages had been ages of simple
expansion,—of a widening theatre for the leading races,—of a
widening knowledge of the earth and the heavens,—of a widening
range for human thought; but those expansive movements in
civilization led up, at last, to more wonderful processes of
transformation, which were just in their beginning when the
Nineteenth Century dawned. For all the generations of mankind
that had lived before this century, the earth, as a dwelling
place, remained nearly unchanged. They had cleared some
forests from its face, and smoothed some paths; but, in every
substantial feature, the France, for example, of Napoleon was
the unaltered Gaul that Julius Cæsar knew. Everywhere the
material conditions of life were essentially the same for the
man of the Eighteenth Century that they had been for the man
of the First. Then began the amazing work of the brain and
hand of man, by which he has been refashioning and refitting
the planet he inhabits, and making a new world for his
dwelling. As a habitable earth, to-day, it bears no likeness
to the earth on which the first day of this century dawned.
Its distances mean nothing that they formerly did; its
dividing seas and mountains have nothing of their old effect;
its pestilences have lost half their terror; its very storms
are sentinelled and rarely surprise us in our travels or our
work. Netted with steam and electric railways, seamed with
canals, wire-strung with telegraphic and telephonic lines, its
ocean-voyages made holiday excursions, its every-day labors,
of the forge, the plough, the sickle, the spindle, the loom,
the needle, and even of the pen, done with magical deftness by
machines, which its coal mines and its waterfalls lend forces
to move, it is nothing less than a new world that men are
making for themselves, out of that in which they lived at the
beginning of the era of mechanism and electricity and steam.
"Yet these are but outward features of the transformation that

is being wrought in the world. Socially, politically, and
morally, it has been undergoing a deeper change. A growth of
fellow-feeling which began in the last century has been an
increasing growth. It has not ended war, nor the passions that
cause war, but it is rousing an opposition which gathers
strength every year. It has made democratic institutions of
government so common that the few arbitrary governments now
remaining in civilized countries seem disgraceful to the
people who endure them so long. It has broken old yokes of
conquest, and revived the independence of long subjugated
states. It has swept away unnatural boundary lines, which
separated peoples of kindred language and race. It is pressing
long-neglected questions of right and justice on the attention
of an classes of men, everywhere, and requiring that answers
shall be found.
"And, still, even these are but minor effects of the

prodigious change which the Nineteenth Century has brought
into the experience of mankind." Beyond them all in importance
are the new conceptions of the universe, and of the method of
God's working in it, which can, with no exaggeration, be said
to have imparted a wholly new spirit and quality to the human
mind. By what it learned from Copernicus, it was given a new
standpoint in thinking. By what it learned from Newton, it was
given a new and larger grasp. By what it has learned from
Darwin and Spencer it has been equipped with a new insight,
and looks at even the mystery of life as a problem to be
solved. "If we live in a world that is different from that
which our ancestors knew, it is still more the fact that we
think of a different universe, and feel differently in all our
relations to it."
J. N. Larned,
History of England for the Use of Schools,
page 561.
NINETEENTH CENTURY:
Comparison of the Century with all preceding ages,
as regards man's power over Nature.
"No one, so far as I am aware, has yet pointed out the

altogether exceptional character of our advance in science and
the arts, during the century which is now so near its close.
In order to estimate its full importance and grandeur—more
especially as regards man's increased power over nature, and
the application of that power to the needs of his life to-day,
with unlimited possibilities in the future—we must compare it,
not with any preceding century, or even with the last
millennium, but with the whole historical period,—perhaps even
with the whole period that has elapsed since the stone age."
Such a comparison is made in the following lists of "the great

inventions and discoveries of the two eras":
"Of the Nineteenth Century."

1. Rail ways.
2. Steam-ships.
3. Electric Telegraphs.
4. The Telephone.
5. Lucifer Matches.
6. Gas illumination.
7. Electric lighting.
8. Photography.
9. The Phonograph.
10. Röntgen Rays.
11. Spectrum-analysis.
12. Anæsthetics.
13. Antiseptic Surgery.
14. Conservation of energy.
15. Molecular theory of Gases.
16. Velocity of Light directly measured
and Earth's Rotation experimentally shown.
17. The uses of Dust.
18. Chemistry, definite proportions.
19. Meteors and the Meteoritic Theory.
20. The Glacial Epoch.
21. The Antiquity of Man.
22. Organic Evolution established.
23. Cell theory and Embryology.
24. Germ theory of disease and
the function of the Leucocytes.
"Of all Preceding Ages."

1. The Mariner's Compass.
2. The Steam Engine.
3. The Telescope.
4. The Barometer and Thermometer.
5. Printing.
6. Arabic numerals.
7. Alphabetical writing.
8. Modern Chemistry founded.
9. Electric science founded.
10. Gravitation established.
11. Kepler's Laws.
12. The Differential Calculus.
13. The circulation of the blood.
14. Light proved to have finite velocity.
15. The development of Geometry.
{338}
"Of course these numbers are not absolute. Either series may
be increased or diminished by taking account of other
discoveries as of equal importance, or by striking out some
which may be considered as below the grade of an important or
epoch-making step in science or civilization. But the
difference between the two lists is so large, that probably no
competent judge would bring them to an equality. Again, it is
noteworthy that nothing like a regular gradation is
perceptible during the last three or four centuries. The
eighteenth century, instead of showing some approximation to
the wealth of discovery in our own age, is less remarkable
than the seventeenth, having only about half the number of
really great advances."
A. R. Wallace,
The Wonderful Century,
chapter 15
(copyright, Dodd, Mead & Company, New York,
quoted with permission).
NINETEENTH CENTURY:
Difference of the Century from preceding ages.
"In the last 100 years the world has seen great wars, great
national and social upheavals, great religious movements,
great economic changes. Literature and art have had their
triumphs and have permanently enriched the intellectual
inheritance of our race. Yet, large as is the space which
subjects like these legitimately fill in our thoughts, much as
they will occupy the future historian, it is not among these
that I seek for the most important and the most fundamental
differences which separate the present from preceding ages.
Rather is this to be found in the cumulative products of
scientific research, to which no other period offers a
precedent or a parallel. No single discovery, it may be, can
be compared in its results to that of Copernicus; no single
discoverer can be compared in genius to Newton; but, in their
total effects, the advances made by the 19th century are not
to be matched. Not only is the surprising increase of
knowledge new, but the use to which it has been put is new
also. The growth of industrial invention is not a fact we are
permitted to forget. We do, however, sometimes forget how much
of it is due to a close connection between theoretic knowledge
and its utilitarian application which, in its degree, is
altogether unexampled in the history of mankind. I suppose
that, at this moment, if we were allowed a vision of the
embryonic forces which are predestined most potently to affect
the future of mankind, we should have to look for them not in
the Legislature, nor in the Press, nor on the platform, nor in
the schemes of practical statesmen, nor the dreams of
political theorists, but in the laboratories of scientific
students whose names are but little in the mouths of men, who
cannot themselves forecast the results of their own labors,
and whose theories could scarcely be understood by those whom
they will chiefly benefit. …
"Marvellous as is the variety and ingenuity of modern

industrial methods, they almost all depend in the last resort
upon our supply of useful power; and our supply of useful
power is principally provided for us by methods which, so far
as I can see, have altered not at all in principle, and
strangely little in detail, since the days of Watt. Coal, as
we all know, is the chief reservoir of energy from which the
world at present draws, and from which we in this country must
always draw; but our main contrivance for utilizing it is the
steam engine, and, by its essential nature, the steam engine
is extravagantly wasteful. So that, when we are told, as if it
was something to be proud of, that this is the age of steam,
we may admit the fact, but can hardly share the satisfaction.
… We have, in truth, been little better than brilliant
spendthrifts. Every new invention seems to throw a new strain
upon the vast but not illimitable, resources of nature. Lord
Kelvin is disquieted about our supply of oxygen; Sir William
Crookes about our supply of nitrates. The problem of our coal
supply is always with us. Sooner or later the stored-up
resources of the world will be exhausted. Humanity, having
used or squandered its capital, will thenceforth have to
depend upon such current income as can be derived from that
diurnal heat of the sun and the rotation of the earth till, in
the sequence of the ages, these also begin to fail. …
"After all, however, it is not necessarily the material and

obvious results of scientific discoveries which are of the
deepest interest. They have affected changes more subtle and
perhaps less obvious which are at least as worthy of our
consideration and are at least as unique in the history of the
civilized world. No century has seen so great a change in our
intellectual apprehension of the world in which we live. Our
whole point of view has changed. The mental framework in which
we arrange the separate facts in the world of men and things
is quite a new framework. The spectacle of the universe
presents itself now in a wholly changed perspective. We not
only see more, but we see differently. The discoveries in
physics and in chemistry, which have borne their share in thus
re-creating for us the evolution of the past, are in process of
giving us quite new ideas as to the inner nature of that
material whole of which the world's traversing space is but an
insignificant part. Differences of quality once thought ultimate
are constantly being resolved into differences of motion or
configuration. What were once regarded as things are now known
to be movement. … Plausible attempts have been made to reduce
the physical universe, with its infinite variety, its glory of
color and of form, its significance and its sublimity, to one
homogeneous medium in which there are no distinctions to be
discovered but distinction of movement or of stress. And
although no such hypothesis can, I suppose, be yet accepted,
the gropings of physicists after this, or some other not less
audacious unification, must finally, I think, be crowned with
success. The change of view which I have endeavored to
indicate is purely scientific, but its consequences cannot be
confined to science. How will they manifest themselves in
other regions of human activity, in literature, in art, in
religion?"
A. J. Balfour,
The Nineteenth Century
(Address before the University Extension Students
at Cambridge, August 2, 1900).
NINETEENTH CENTURY:
The intellectual and social trend of the Century.
"The two influences which have made the nineteenth century

what it is seem to me to be the scientific spirit and the
democratic spirit. Thus, the nineteenth century, singularly
enough, is the great interpretative century both of nature and
of the past, and at the same time the century of incessant and
uprooting change in all that relates to the current life of
men. It is also the century of national systems of popular
education, and at the same time of nation-great armies; the
century that has done more than any other to scatter men over
the face of the earth, and to concentrate them in cities; the
century of a universal suffrage that is based upon a belief in
the inherent value of the individual; and the century of the
corporation and the labor union, which in the domain of
capital and of labor threaten to obliterate the individual. …
{339}
"The mind has been active in all fields during this fruitful
century; but, outside of politics, it is to science that we
must look for the thoughts that have shaped all other
thinking. When von Helmholtz was in this country, a few years
ago, he said that modern science was born when men ceased to
summon nature to the support of theories already formed, and
instead began to question nature for her facts, in order that
they might thus discover the laws which these facts reveal. I
do not know that it would be easy to sum up the scientific
method, as the phrase runs, in simpler words. It would not be
correct to say that this process was unknown before the
present century; for there have been individual observers and
students of nature in all ages. … But it is true that only in
this century has this attitude toward nature become the
uniform attitude of men of science. …
"One of the chief results of the scientific method as applied

to nature and the study of the past is the change that it has
wrought in the philosophic conception of nature and of human
society. By the middle of the century, Darwin had given what
has been held to be substantial proof of the theory of the
development of higher forms out of lower in all living things;
and since then, the doctrine of evolution, not as a body of
exact teaching, but as a working theory, has obtained a
mastery over the minds of men which has dominated all their
studies and all their thinking. …
"Every public educational system of our day, broadly speaking,

is the child of the nineteenth century. The educational system
of Germany, which in its results has been of hardly less value
to mankind than to Germany itself, dates from the reconstitution
of the German universities after the battle of Jena. Whatever
system France may have had before the Revolution went down in
the cataclysm that destroyed the ancient regime, so that the
educational system of France also dates from the Napoleonic
period. In the United States, while the seeds of the public
school system may have been planted in the eighteenth, or
perhaps even in the seventeenth century, it has only been in
the nineteenth century, with the development of the country,
that our public school system has grown into what we now see;
while in England, the system of national education, in a
democratic sense, must be dated from 1870. … Out of the growth
of the democratic principle has come the belief that it is
worth while to educate all the children of the state: and out
of the scientific method, which has led to the general
acceptance of the evolutionary theory, has been developed the
advance in educational method which is so marked a feature of
the last decades of the century. …
"Not only has the scientific method furnished a philosophy of

nature and of human life, but, by the great increase in man's
knowledge of natural law to which it has led, it has resulted
in endless inventions, and these, in turn, have changed the
face of the world. … The rapid progress of invention during
the century has been coincident with one far-reaching change
in the habits of society, the importance of which is seldom
recognized. I refer to deposit banking. Of all the agencies
that have effected the world in the nineteenth century, I am
sometimes inclined to think that this is one of the most
influential. If deposit banking may not be said to be the
result of democracy, it certainly may be said that it is in
those countries in which democracy is most dominant that
deposit banking thrives best. … Some one has said that it
would have been of no use to invent the railroad, the
submarine cable, or the telephone at an earlier period of the
world's history, for there would have been no money at command
to make anyone of them available before this modern banking
system had made its appearance. If this be so, then indeed the
part that has been played by deposit banking in the
developments of the century cannot be overestimated.
"During the century the conditions of the world's commerce

have been radically altered. It is not simply that the
steamboat and the locomotive have taken the place of the
sailing-ship and the horse; that the submarine cable has
supplanted the mails; nor even that these agencies have led to
such improvements in banking facilities that foreign commerce
is done, for the most part, for hardly more than a brokerage
upon the transaction. These are merely accidents of the
situation. The fundamental factors have been the opening up of
virgin soil in vast areas to the cultivation of man, and the
discovery of how to create artificial cold, which makes it
possible to transport for long distances produce that only a
few years ago was distinctly classed as perishable. The net
result of these influences has been to produce a world
competition at every point of the globe. …
"Democracy, as a political theory, emphasizes the equality of

men and the equal rights and privileges of all men before the
law. The tendency of it has been, in this country, to develop
in multitudes of men great individuality and self-reliance.
Side by side with this tendency, however, we see the
corporation supplanting the individual capitalist, and the
trade union obliterating the individual laborer, as direct
agents in the work of the world. Strange as this contrast is,
both tendencies must be consistent with democracy, for the
corporation and the trade union flourish most where democracy
is most developed. Indeed, they seem to be successful and
powerful just because democracy pours into them both its vital
strength. …
"The tendency to democracy in politics is unquestionably the

dominant political fact of the century. … Outside of Russia,
and possibly even there, monarchical government in Europe is
obliged to depend for its support upon the great body of the
nation, instead of upon the power of the great and the noble.
… In the United States, the century, though it began with a
limited suffrage, ends with universal manhood suffrage, and
even with woman suffrage in some of the Western States. …
Undoubtedly, universal suffrage and the large immigration of
people without any experience in self-government have given
form to many of our problems; but I often think there is far
too great a disposition among us to magnify the difficulties
which these conditions present. …
{340}
The fact is, in my judgment, that our problems arise not so
much from universal suffrage as from the effect of the
multiplication table applied to all the problems of life. …
Anyone building a house in the country, when he has dug a well
has solved the problem of his water supply; but to supply
water for a great city calls for the outlay of millions of
dollars, and for the employment of the best engineering talent
in the land. Yet nothing has happened except that the problem
has been magnified. Thus the difficulties created by the
multiplication table are real; so that the very enlargement of
opportunity that democracy has brought with it has faced
democracy with problems far harder than were formerly
presented to any government. …
"To sum up, therefore, I should say that the trend of the
century has been to a great increase in knowledge, which has
been found to be, as of old, the knowledge of good and evil;
that this knowledge has become more and more the property of
all men rather than of a few; that, as a result, the very
increase of opportunity has led to the magnifying of the
problems with which humanity is obliged to deal; and that we
find ourselves, at the end of the century, face to face with
problems of world-wide importance and utmost difficulty, and
with no new means of coping with them other than the patient
education of the masses of men."

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7.1 What Is Money?

1) A disadvantage of the barter system is that

3) In economics, money refers to

6) The following are all functions of money EXCEPT

14) M1 does not include

15) Which of the following is not part of M1?

16) Which of the following statements about M1 and M2 is true?

19) M2 does not include

20) Over half of U.S. currency is

22) We shouldn't be concerned about U.S. currency held abroad because

27) What function is money playing in each of these situations:

7.2 Portfolio Allocation and the Demand for Assets

1) People's best guesses about returns on assets are called

2) The set of assets that a holder of wealth chooses to own is called

4) The risk premium is

8) Compared with money, bonds have

10) The least liquid asset on this list is

Use that information to answer the following questions.

7.3 The Demand for Money

1) A 10% decrease in real income usually leads to ________ in money demand.

2) A 5% increase in real income usually leads to ________ in money demand.

5) The opportunity cost of holding currency decreases when

20) Money demand is given by

26) Suppose the money demand function is

7.4 Asset Market Equilibrium

1) Under a situation of asset market equilibrium,

Of the territorial partition in West Africa which this

"Though we are perfectly satisfied with the agreement, and

"But probably this will not convey much to the ordinary

"First, we come to Tunis,—that is in the possession of France

The Spectator (London)

Nine months later, when the agreement embodied in the

"The first thing that strikes one in considering the French

The Spectator, March 25, 1899.

"The city presented the most appalling sight, particularly

See (in this volume)

The Royal Niger Company transferred its territories to the

NILE, Barrage and reservoir works on the.

See (in this volume)

See (in this volume)

NINETEEN HUNDRED, The Universal Jubilee of.

See (in this volume)

----------THE NINETEENTH CENTURY: Start--------

Controversy as to whether the Nineteenth Century came to its

A consistent application of this view to the defining and

In the last years of the Eighteenth Century a new epoch in

"Yet these are but outward features of the transformation that

"And, still, even these are but minor effects of the

"No one, so far as I am aware, has yet pointed out the

Such a comparison is made in the following lists of "the great

"Of the Nineteenth Century."

"Of all Preceding Ages."

"Marvellous as is the variety and ingenuity of modern

"After all, however, it is not necessarily the material and

"The two influences which have made the nineteenth century