Question

Question 1 (1 point)

How did the banking panic contribute to the Great Depression as more people went to withdraw money from their accounts as unemployment increased?
Question 1 options:


A. President Roosevelt forced all banks to remain open even if they had no cash reserves


B. banks made the decision to print money so that customers would have something to withdraw


C. the banks ran out of money because they were unable to collect on outstanding loans leading to widespread bank failures across the US.


D. many banks had too much money on hand and were able to pay out withdrawals with interest

Answer 1

C) the banks ran out of money because they were unable to collect on outstanding loans leading to widespread bank failures across the US

Answer 2

The correct answer is C) The banks ran out of money because they were unable to collect on outstanding loans leading to widespread bank failures across the US.

During the 1920's, many banks allowed citizens to buy stocks on margin. This allowed citizens to borrow 90% of a stocks value from the bank. Since stocks did so well during the 1920's, banks were willing to loan this money with confidence. However, when the stock market crashed in October of 1929, thousands of citizens were unable to pay back their loans to the bank. These banks then would run out of money, since they had no source of revenue. This resulted in thousands of bank failures all over the US.