In early 2020, some commentators warned that the unprecedented global pandemic crisis would lead to Greater Depression. This type of prediction led many to revisit the Great Depression in the 1930s to see if there is any parallel. At the time, no one could rule out the possibility of another depression. Yet many economists believed that the very mistakes that had led to the Great Depression could be avoided this time. What are the policy mistakes that had led to the Great Depression? a. Fed failed to follow Walter Bagehot’s dictum that during a financial panic, central banks should lend freely to solvent firms against good collateral at penalty rates. b. Fed allowed the money supply to fall by one-fourth, which likely caused the deflation in the early 1930s. c. Fiscal policy was tightened to pursue a balanced budget. d. The U.S. government did not abandon the gold standard until 1933 (the gold standard constrains the monetary policy). e. All of the above are thought to be the policy errors made at the time.
In early 2020, some commentators warned that the unprecedented global pandemic crisis
would lead to Greater Depression. This type of prediction led many to revisit the Great
Depression in the 1930s to see if there is any parallel.
At the time, no one could rule out the possibility of another depression. Yet many economists
believed that the very mistakes that had led to the Great Depression could be avoided this
time.
What are the policy mistakes that had led to the Great Depression?
a. Fed failed to follow Walter Bagehot’s dictum that during a financial panic, central banks
should lend freely to solvent firms against good collateral at penalty rates.
b. Fed allowed the money supply to fall by one-fourth, which likely caused the deflation in
the early 1930s.
c. Fiscal policy was tightened to pursue a balanced budget.
d. The U.S. government did not abandon the gold standard until 1933 (the gold standard
constrains the
e. All of the above are thought to be the policy errors made at the time.
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