Great Contraction 1929-1333
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Transcript of Great Contraction 1929-1333
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Keys Ideas/Topics/Issues (F&S 7-7.5)
• %ΔM, %Δv, %ΔP, %Δy– Closer look at velocity
• Importance of HPM, D/C, D/R => %ΔM• Importance of Great Contraction• Timeline of key events (1929-33)• Why existence of Fed prevented 1907-type solution• Closer look at bank failures
– Why were they important?
– Why did they happen?
– Why was Fed relatively unconcerned?
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Great Contraction1929-1333
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Great Contraction1929-1333
Time Line of Key Events: • Fed “tightens” money to fight stock-market
speculation – 1928-29. – FRB-NY raises discount rate from 3.5% to 5% in early 1928.– Fed securities holdings drop from over $600 to $210 million
(year-end 1927 to August 1929).– FRB-NY raises discount rate from 5% to 6% in August 1929.Result: Money stock declines slightly from April 1928 to August 1929
(only other 16-month declines are 1907-08 and 1920-21).
• Stock Market Crash – October 1929
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Great Contraction1929-1333
Time Line of Key Events: • First Banking Crisis – October 1930• Second Banking Crisis – March 1931• Britain’s Departure from Gold – September 1931 • Large-Scale Open-Market Purchases – April 1932• Banking Panic of 1933
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Great Contraction1929-1333
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Great Contraction1929-1333
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Great Contraction1929-1333
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