THE GREAT DEPRESSION 1929 1940
THE GREAT DEPRESSION
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Banks eventually ran out of money to loan, and people’s life savings were gone.
|
|
|
Banks made loans throughout the Great Depression, helping people pays bills until they could find work.
|
|
|
Banks were able to people’s deposits safe, but they could not loan out any more money.
|
|
|
Banks were not at all involved in the Great Depression because people did not use them.
|
Detailed explanation-1: -That is the monetary explanation for the Great Depression. Bank failures, bank runs caused a contraction of the money supply, causes a decline in spending, investing, and GDP.
Detailed explanation-2: -In all, 9, 000 banks failed–taking with them $7 billion in depositors’ assets. And in the 1930s there was no such thing as deposit insurance–this was a New Deal reform. When a bank failed the depositors were simply left without a penny. The life savings of millions of Americans were wiped out by the bank failures.
Detailed explanation-3: -The monetary contraction, as well as the financial chaos associated with the failure of large numbers of banks, caused the economy to collapse. Less money and increased borrowing costs reduced spending on goods and services, which caused firms to cut back on production, cut prices and lay off workers.
Detailed explanation-4: -As a bank run progresses, it may become a self-fulfilling prophecy: as more people withdraw cash, the likelihood of default increases, triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy.