In the monetary Module, you saw a film clip from the movie, "It's a Wonderful Life." In this clip, the owner of the savings & loan bank was swamped with people wanting the money they had deposited in their savings accounts. He didn't have their money. He said, "You're thinking of this place all wrong, as if I had the money back there in the safe....Your money is in Joe's house, and Kennedy's house and Mrs. Makelin's house."
What fundamental idea behind the US banking system does his statement reflect?
fractional reserve banking.
how the Smoot-Hawley Act caused bank panics.
the money multiplier effect.
failure of the Federal Reserve to provide liquidity.