Final answer:
The Federal Reserve played a significant role in the Great Depression by mishandling monetary policy and failing to supply liquidity to banks. After the crisis, reforms including stricter bank regulation and federal deposit insurance were introduced to prevent future collapses.
Step-by-step explanation:
The role of the Federal Reserve during the Great Depression was significant, as it influenced monetary policy and financial stability. Initially, the Fed was ineffective in preventing the economic downturn, primarily due to inadequate management of the money supply and a failure to act as a lender of last resort during bank panics. In the early 1930s, the Fed raised interest rates to preserve the gold standard, which exacerbated deflationary pressures and hindered economic recovery.
Due to the lack of strict regulation of private banks and no insurance to protect against bank failures, the situation worsened, leading to widespread bank runs and closures. It was not until after the Great Depression that reforms were made, including the implementation of federal banking regulations and federal deposit insurance, to prevent such a catastrophic economic collapse in the future.