depression and recession Flashcards
why did the wall street crash turn into the great depression?
- commitment to the gold standard
- worldwide resitrictions on imports
why did commitment to the gold standard have negative effects?
- following crash consumers lost confidence and exchanged their money into gold for safe keeping
- restrictive trade policy
- contractionary fiscal policy
- increased intrest rates
how did worldwide restrictions on imports have neative effects ?
- was set in attempt to protect domestic industry
- the countries placed a ban on american goods in retaliation. World trade collapsed
- firms that relied on importing their raw materials had costs that were too high and had to shut down
- increase in unemployment, negative multiplier effects
why did a contractionary fiscal policy have negative effects?
- increase in taxes, reduction in government spending
- reduction in incomes discouraging consumption & investment
- inwards shift in AD
why did increasing inrest rates have a negative effect?
- intention: for people to stop conevrting money into gold, increasing intrest rates will encourage them to hold onto cash for a greater return
- decrease in conumption
- decrease in investment
- AD decreases
what are the 3 policies that roosavelt implemented in response to the great depression?
- new deal
- abandoning the gold standard–> expansionary monetary policy
- removal of trade restrictons
what was the new deal?
expationary fiscal policy
* more schools, hospitals, roads, bridges
* increase in employment and spending
what did abandoning the gold standard do?
allowed the central bank to control the money supply purley via intrest rates
* decrease in intrest rates, decraese in consumption and investment, increase in AD
what wass the UK’s resposne to the 2008 financial crisis?
- cutting intrest rates to 0.5 %
- quantitive easing
- expansionary fiscal policy
