The Federal Reserve banks could probably have prevented many of the bank failures in the early 1930s by _____
A) raising the reserve requirement of commercial banks.
B) lending money to the commercial banks.
C) improving the system whereby checks are cleared.
D) helping to create a commission of experts to engage in a prolonged study of the problem.
E) selling large amounts of government bonds.

Question

Quizplus · Accepted Answer

By lending money to the commercial banks, the Federal Reserve could have provided temporary relief and prevented the liquidity crisis that many banks faced. This would have allowed the banks to have more funds available to lend and prevented the mass bank failures during the Great Depression. Raising the reserve requirement may have further constrained the banks, while improving the check clearing system and creating a commission to study the problem may have helped in the long run but would not have had an immediate impact. Selling government bonds would have also provided temporary relief, but not as directly as lending money to the banks.

The Federal Reserve Banks Could Probably Have Prevented Many of the Bank