International Baccalaureate (IB) Practice Exam

Why was the use of credit uncommon prior to 1917?

1. Lending money to others was not profitable.

2. Borrowing money was generally not socially acceptable.

3. Laws prevented lenders from charging high interest rates.

4. All of the above.

The correct answer is: All of the above.

The use of credit was uncommon prior to 1917 due to a combination of factors that made lending and borrowing practices less integrated into everyday economic life. Lending money was not considered particularly profitable in that era, as the financial systems were not as developed, and potential returns on loans might not have justified the risks involved. Additionally, societal norms played a significant role; borrowing money was often stigmatized, leading people to avoid it in favor of saving or frugality. This cultural attitude contributed to the minimal use of credit. Moreover, legal limitations also influenced the landscape of credit. Many jurisdictions had laws aimed at regulating interest rates, which prevented lenders from charging rates that would be considered useful for making lending a viable business—thus discouraging banks and individuals from engaging in lending practices as a regular activity. These combined sociocultural, legal, and economic factors contributed to the rarity of credit in society before 1917.