Question

When FDR closed the banks during his declared "banking holiday" how would it affect the aggreagte demand?

Answer 1

The banking crises of the Great Depression altered that view. American bank failures caused the losses to depositors in the 1930s in excess of 3% of GDP. Bank runs, bank holidays, local and national government decreed periods of bank closing to try to calm markets and accountholders, and widespread bank closing recommended a disordered and weak system in need of transformation.
After a month-long run on US banks (Franklin Delano Roosevelt proclaimed a Bank Holiday) start March 6, 1933 and shut down the banking system. Whereas the banks reopened on March 13, accountholders stood in line to return their stored money. This article points the success of the Bank Holiday and the extraordinary turnaround in the public’s confidence to the Emergency Banking Act, approved by Congress on March 9, 1933. Roosevelt applied the emergency currency provisions of the Act to boost the Federal Reserve to generate 100 % deposit insurance in the reopened banks. The current press authorises that the public accepted the implied agreement and understood that the reopened banks should be safe, as the President Franklin Delano Roosevelt described in his first Fireside Talk on March 12, 1933. Americans answered by repaying more than half of their accumulated cash to the banks within 2 weeks and by bidding up share prices by the largest ever 1 day percentage price increase on March 15.
The first trading day once the national holiday was over.
The study concludes that the Bank Holiday and the Emergency Banking Act of 1933 reinstated the honesty of the U.S. payments system and validated the power of trustworthy regime shifting strategies.
First, the declining capital position of the banks made them weak to even minor pipes1. The public’s demand for money during February and March 1933 was worsened by a demand for gold.
Third, though the Fed Act provided for associate elastic currency by permitting a Federal Reserve Bank to discount eligible cash equivalent and ship the profit in the form of Federal Reserve Notes to bank the Act too forced a reserve requirement of 40 % gold backing for Federal Reserve Notes outstanding. Lastly, by March 3, 1933, the gold drain at the Federal Reserve Bank of New York abridged its gold reserve ratio to 24 %. Meltzer states that the Federal Reserve Board then suspended the gold reserve necessity but quotes Federal Reserve Bank of New York Governor Harrison, says that he sholud not take the responsibility of running the bank with deficient funds. Perhaps Wicker sums up the situation best: Using the previous 1914 remedy of postponement of cash disbursements can be clarified easily
It was sensed that the various Federal Reserve must support the reopened banks to the hilt and it was no time for any conservative head of a Federal Reserve Bank to use his conservatism if the Federal Reserve agreed to a reopening of a particular bank should demand be made for cash