Question

In the early 1930s the Fed failed to undertake actions to quickly end bank panics. At the time, may have been able to end the panics if it had

A. sold government securites and transferred the cash to the US Treasury

B. increased reserve requirements to make banks safe

C. lowered the discount rate and so encouraged banks to borrow from the Fed

D. followed a contractionary policy to reduce withdrawals by bank customers

Answer 1

Ans - C) lowered the discount rate and so encouraged banks to borrow from the Fed

Explanation:

During early 1930s, the Fed may have been able to end the panics if it had lowered the discount rate and so encouraged banks to borrow from the Fed because at that time bankruptcies and defaults increased which reduces the funds in the banks and banks are not able to give back the money of people deposited in their bank at that time Fed could help the banks by acting as lender of last resort but it failed to do so. That's why ans is C)