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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People began to lose confidence in the economy, and frightened depositors began to remove their money from banks
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banks game out too many loans in the early 1920s, so there was a great deal of money in circulation
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The Federal Reserve increased interest rates in the 1920s to stimulate economic growth, but then it limited money supply to discourage lending
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After the stock market crash, people went to banks to secure their hard money, so they could circulate it back into the economy
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Detailed explanation-1: -Why were banks one of the first institutions to feel the effects of the stock market crash? A. The Federal Reserve increased interest rates in the 1920s to stimulate economic growth, but then it limited money supply to discourage lending.
Detailed explanation-2: -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-3: -Many banks failed due to their dwindling cash reserves. This was in part due to the Federal Reserve lowering the limits of cash reserves that banks were traditionally required to hold in their vaults, as well as the fact that many banks invested in the stock market themselves.