Question

Consider the noted policy mistakes made by the Federal Reserve during the Depression and explain how each may have contributed to economic decline.

“The speculative effects of the stock market boom in 1928-29 caused the Fed to increase interest rates to curtail the boom.”

Answer 1

The federal reserve system gave only big banks loans/money to give out to their customers as credit, but many people had money in smaller banks, so when people started to fear after the Stock Market Crash of 1929 and take money out of the banks, not everyone was able to, so the banks went under and some people left without their money. This began to cause deflation, causing prices to drop, businesses cut costs which then requires them to let off workers, which begins the whole cycle again.