Final answer:
The 1937-1938 recession was caused by the reduction of federal spending, tightening of money supply by the Federal Reserve, uncertainty about tax increases, and potential short-term effects of the Fair Labor Standards Act. President Roosevelt's subsequent increase in federal spending helped to mitigate the recession.
Step-by-step explanation:
Government Actions and the 1937-1938 Recession
The 1937-1938 recession, often considered a recession within the Great Depression, had several causes linked to government actions. One key factor was the curtailment of federal government spending in job relief programs like the Works Progress Administration (WPA). This reduction in spending led to decreased consumer spending and economic activity. Another action that contributed to the downturn was the Federal Reserve's decision to tighten the nation's money supply, which decreased the availability of credit and further slowed economic growth.
Historians also point to the uncertainty around potential increased taxes, which may have caused factory owners to hold back on planned expansions. Furthermore, the passing of the Fair Labor Standards Act in 1938, although beneficial for labor rights, could have had short-term contractionary effects on the economy. In response to this recession, President Franklin D. Roosevelt eventually reversed course and increased federal spending based on Keynesian economic theory, which advocated for deficit spending to boost employment and consumer spending. This action helped to avoid further economic disaster at that time.