Great Contraction 1929 1333 Keys IdeasTopicsIssues FS 7

Great Contraction 1929 -1333 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? 1

Great Contraction 1929 -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 2

Great Contraction 1929 -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 3

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