Final answer:
The Federal Reserve's incorrect use of monetary policy in 1929 decreased the money supply, leading to economic decline during the Great Depression. Corporate profits suffered, and government philosophy limited intervention, which added to economic stresses. Differences in reaction were seen during the Great Recession, with the Federal Reserve using aggressive monetary policy and unconventional methods.
Step-by-step explanation:
The use of an incorrect monetary policy by the Federal Reserve in 1929 contributed to a reduction in the money supply, which exacerbated the conditions of the Great Depression. At the time, the Federal Reserve failed to appropriately lower interest rates and provide the necessary liquidity to the banking system. This misstep restricted the amount of money in circulation, leading to deflationary pressures and worsening economic conditions. Companies faced high interest payments, which impacted their profitability and contributed to increasing distrust between labor and capital. The government adhered to a laissez-faire philosophy, resisting the increase in money supply by printing more currency due to fear of inflation and a high federal budget deficit and public debt.
Moreover, during the Great Recession, monetary policy was used differently, with aggressive rate cuts to stimulate the economy. However, with interest rates reaching near-zero, the Federal Reserve had to resort to unconventional measures beyond traditional open market operations to support the economy.