Week 2: Economic Policy Mistakes, The Great Depression

Great Depression
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The Great Depression
Depression means a period in which the government economy or an economic activity undergoes a prolonged and severe down turn. For a period of about 9 years, between 1929 and 1939 there existed a Great Depression that saw worst economic situations ever in the history of world industrialization (Amacher, & Pate (2012). With several years after the onset of great depression in 1929, aspects of life and economy of the nation proceeded to be constricted. The effects affected how consumers invested and spent, output of the industries with its extremes resulting to raising number of unemployment sand financial institutions collapsing.
Economic Policy Mistakes the U.S. Made in Late 1920s That May Have Resulted in The Great Depression
The main course of the depression is attributed to a large extent on to the inflexible monetary policies. In 1928, the FED bank introduced policy that caused the increase in rates that they used to charge on its funds (Federal Research Education, 2017). The interest continued to climb up even after experiencing a recession on August 1929. As a result of these high interests, the stock market crashed in October 1929. Following the crash of stock market, investors shifted their focus to currency markets. The trading of dollars for gold commenced in 1931, September that gave birth to dollar run on. The policies further facilitated additional raise on the interest rate as preservative measure on the value of the dollar. Due to this, the availability of the money for business was restricted increasing the bankruptcies. Fed failed to top up more money as strategy of tacking the deflation.
Fed ignored the plight of the banks when they began to collapse as a result of investors and consumers pulling out all of their deposits. This decreased the supply of the money. In 1930, a smooth- Hawley tariff act was passed with the aim of protecting the industries of U.S. from overseas competitors. As a result of tough tax rates on the goods imported to U.S., some of the trading partners also introduced tough tariffs on the goods made by the U.S. This lead to world trade decline \by over 60% for the period between 1929 and 1934.
The Role of The Gold Standard Played in Exacerbating the Great Depression
Under the classic gold standard, dollars were traded at a fixed rate to gold by the governments. Governments look up on the gold standards to enhance the fiscal and monetary discipline. Unfortunately, speculators had no faith in the governments trading habits that they can stick by the standards. As lack of faith went up the flow of international capitals turned out to be looser. This caused mixed questions of whether the pound would lose ...