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. *************************************************************************** ***** Here's an essay question I often give my students: *************************************************************************** ***** 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? *************************************************************************** ***** 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 ___________________________________________________________________________ ___ Department of Economics 426 Decio Hall 131 S. William Street University of Notre Dame (219)631-6979 (O) South Bend, IN 46601 Notre Dame, IN 46556 (219)631-8809 (F) (219)289-4844