USA HISTORY

THE ROARING 20S 1920 1929

AMERICAN ORGANIZED CRIME OF THE 1920S

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
During the Great Depression, nearly half of the banks in the United States closed and millions lost their savings. Why did this happen?
A
Banks invested savings in the stock market.
B
The price of gold plummeted.
C
Consumers relied on credit to purchase goods.
D
Buying on margin.
Explanation: 

Detailed explanation-1: -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.

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: -Deflation increased the real burden of debt and left many firms and households with too little income to repay their loans. Bankruptcies and defaults increased, which caused thousands of banks to fail. In each year from 1930 to 1933, more than 1, 000 U.S. banks closed.

Detailed explanation-4: -Three things happened: (1) many of those who had savings lost them in bank failures; (2) those who managed to hand onto cash found it more valuable as prices fell substantially; (3) many didn’t have money because they lost their jobs or farm ouput fell and prices of farm goods collapsed.

There is 1 question to complete.