Question

uring the 1920s, the Federal Reserve increased the money supply and kept interest rates very low, encouraging consumer spending and the brisk borrowing of money. Business investment and the expansion of businesses grew rapidly during the 1920 to meet the needs of this huge consumer spending. However, during the Crash of 1929, the Federal Reserve reversed its expansionary monetary policy and cut off the money supply by almost 30%, causing banks to not have enough currency on hand when depositors wanted their hard-earned money.

After reading the prompt, what can you surmise happened next that contributed to the Great Depression?
Responses
A Black TuesdayBlack Tuesday
B collapse of bankscollapse of banks
C high unemploymenthigh unemployment
D election of Franklin D. Roosevelt

Answer 1

After the Federal Reserve cut off the money supply and the banks did not have enough currency on hand for depositors, the logical consequence that contributed to the Great Depression was **B collapse of banks**. This bank collapse led to a loss of savings for many individuals, further exacerbating the economic downturn and contributing to high unemployment and other related issues such as the eventual election of Franklin D. Roosevelt as a response to the crisis.