Ane Mayhew wrote: 
 
>Before people get too deeply into trying to decide which is the two 
>versions is correct, they should check the stats for 1930-33 and then 
>specify precisely what is meant by "tight monetary policy" for this 
>period.  I  do not have sources at hand just at the moment but remember 
>that "excess reserves" and "high powered money" (depending on your 
>preferred way of looking at things) rose.  In F&S's MONETARY HISTORY what 
>makes monetary policy "tight" over this period is inadequate reserves 
>given (an important word here) a shift in bank attitudes toward the 
>Depost/reserve ratio and bank customer attitudes toward the 
>Deposit/currency ratio.  To blame "tight monetary policy" for the 
>disaster is, therefore, slightly peculiar. 
 
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Here's an essay question I often give my students: 
 
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The Great Depression in the 1930s was the greatest economic crisis ever 
experienced in the Western world. Between 1929 and 1933, real GDP in the 
U.S. fell by almost 30% and unemployment reached an all time high of almost 
25%. It wasn't until 1939 that real GDP recovered to its 1929 level, and 
unemployment did not fall below 5% until the U.S. formally entered World 
War II. The classical economists of the time were not equipped to explain 
the existence of such substantial and persistent unemployment or to 
prescribe macroeconomic policies to deal with it. 
 
The Federal Reserve Board is often held responsible for increasing the 
severity of the Great Depression. Use the following data to evaluate 
whether monetary policy was expansionary or contractionary during this 
period. 
 
                                        August 1929             March 1933 
Currency                                3.9                     5.5 
Demand Deposits                         27.6                    13.5 
Reserves                                3.2                     2.9 
 
How would you explain the severity of the Great Depression and what would 
you have done had you been a policymaker during that period? 
 
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        So, H went from 7.1 to 8.4, M went from 31.5 to 19, cu (=CU/D) went 
from .14 to .41, and re (=RE/D) went from .12 to .21. Anne is right. 
 
                                        --Esther-Mirjam Sent 
 
 
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