1. Depression Monetary Policy Objective: Analyze the Monetary Policy of the Great Depression

2. History Panic 1893 Overbuilding of Railroads Run on gold supply (populism) Banks closed Panic 1907 NYSE fell 50% Run on banks Banks closed

3. The FED 1913 – Federal Reserve Act Response to Panic of 1907 Run on Banks Created a central bank to run monetary policy for US Goal maximum employment Stable prices Interest rates Make sure Banks DON’T FAIL for no reason

4. Monetary Policy Savings during 20s declined Banks reckless with money invest in stocks Less money = less loans Fed allowed banks to fail Could not loan money – no gold to support loan

5. Hoover’s approach Leave it alone approach Smoot-Hawley Tariff Cut taxes for rich – lead to deficit for government Then raised taxes when saw the problem Including a tax on checks (2 cents = 30 cents today)

6. Hoover Asked business not to cut wages Increase government spending 1932 started to have public works projects – too late

7. FDR’s Role FDR closed banks for 3 days FEDS put billions of dollars back in circulation Got rid of Gold Standard