THE GREAT DEPRESSION 1929 1940
THE GREAT DEPRESSION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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caused banking institutions to collect funds from the government
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caused overseas investors to worry about giving money to America.
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caused the government to stop reimbursing currency for gold bullion.
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caused many banks to close and create an even greater shortage of money
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Detailed explanation-1: -The Depression Many of the small banks had lent large portions of their assets for stock market speculation and were virtually put out of business overnight when the market crashed. In all, 9, 000 banks failed–taking with them $7 billion in depositors’ assets.
Detailed explanation-2: -Analysis of new data from the early 1930s suggests that depositors’ fears led to runs on banks that were clustered in time and space. These panics significantly reduced lending and monetary aggregates.
Detailed explanation-3: -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-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.