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After the Great Depression: Economic Policies

After the Great Depression: Economic Policies. By Maria Guida. The End of The Great Depression. The Great Depression lasted from 1929 until 1939 During this period, various reforms were enacted to help rebuild the country and the economy In 1939 World War II broke out in Europe

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After the Great Depression: Economic Policies

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  1. After the Great Depression:Economic Policies By Maria Guida

  2. The End of The Great Depression • The Great Depression lasted from 1929 until 1939 • During this period, various reforms were enacted to help rebuild the country and the economy • In 1939 World War II broke out in Europe • During the first few year of the war, the United States remained neutral, concerning itself with domestic defense • In early 1941, the US began to sell arms to the Allied forces • The United States did not enter the war until December 1941, after the Japanese bombing of Pearl Harbor • Many economists and historians believe that World War II is really what propelled the United States out of the Great Depression

  3. US Economy During World War II • Unemployment rate decreased due to the demand for wartime production • Many men were drafted into the military forces • This allowed women the opportunity to enter the workforce; in particular, women began working at factories making war products • Overall economy was on an upswing

  4. US Gross Domestic Product: 1910 – 1960

  5. The Glass-Steagall Act • In 1933, the Glass-Steagall Act was set in place in order to protect the money of bank depositors • This act restricted banks from investing depositors’ money in the financial market; stocks, bonds • The money could be used for loans; personal loans, mortgages • This act formally established the Federal Deposit Insurance Corporation • The FDIC insures depositors’ money in a bank up to a certain amount • In 1934, a depositor was insured up to $2,500 • Today, a depositor is insured up to $250,000

  6. Origins of Bretton Woods • After World War I, nations attempted to revive the gold standard • The gold standard is a system in which the unit of account is gold • However, with the onset of the Great Depression, it collapsed entirely

  7. “The economic health of every country is a proper matter of concern to all its neighbors, near and far.”— U.S. President Franklin D. Roosevelt at the opening of The Bretton Woods Conference

  8. United Nations Monetary andFinancial Conference • July 1 – 22, 1944 • Bretton Woods, New Hampshire • 730 delegates from 44 Allied Nations attended • The conference was set up to regulate international monetary and financial order • As a result of the conference, the Bretton Woods system of exchange rate was set up • Also set in place were the World Bank Group and the International Monetary Fund

  9. Bretton Woods • An international monetary system that set rules for financial relations between nations • Goal: make currencies interchangeable at stable and predictable exchange rates • Proponents of this plan also believed that an international economic system would promote and maintain world peace • This system ran from 1944 – 1971, but did not become operative until 1959 • This was when European currencies became fully convertible

  10. How it works… • Under this system, the central banks of other countries were obliged to maintain fixed exchange rates between their currencies and the dollar • This was done by intervening in foreign exchange markets • For example, if one country’s currency is too high relative to the dollar, its central bank would sell its currency in exchange for dollars • This drives the value of the country’s currency down • And vice versa, if the value of a country’s currency is too low, the country would buy its own currency • This drives the value of the currency up

  11. Bretton Woods: Currency Exchange Before After • Floating exchange rates • The value of foreign currencies was set by the gold standard • Many countries would print money that they did not back up with gold • This led to a devaluation of currency • Adjustable peg currency rates • The value of currencies was determined in relation to the US dollar, which was set on the gold standard; all currencies were fixed to the US dollar • The American dollar was set as the backbone of international exchange

  12. Bretton Woods Pros Cons • The rate of inflation was lower on average • Exchange rates were more stable compared to preceding periods • There was an expansion of international trade and investment • The tight controls implemented by this policy limited international capital flows • Market forces change the exchange rate; many countries were unwilling to allow their exchange rates to adjust • Only the United States was required to convert its domestic currency to gold

  13. The World Bank Group • The World Bank Group is a collection of different organizations that focus on helping developing countries in areas of human development, agriculture, and infrastructure by providing financial support • It is composed of five organizations: • International Bank for Reconstruction and Development • International Development Association • International Finance Corporation • Multilateral Investment Guarantee Agency • International Centre for Settlement of Investment Disputes

  14. International Bank for Reconstruction and Development (IBRD) • Member of the World Bank Group • Original goal: International organization set up to financially help nations reconstruct after World War II • Current goal: Fight poverty by helping financially impoverished states • Financed by payments made and regulated by member states • IBRD primarily serves middle-income countries • IBRD also provides loans to governments at affordable interest rates • All members of IBRD are also member of IMF

  15. International Development Association (IDA) • Member of the World Bank Group • Provides help and support to the world’s poorest countries • It provides interest-free loans to 80 of the world’s poorest countries • These loans help improve education, health services, clean water supply, and institutional reforms • The ultimate goal is to achieve economic growth by reducing poverty, and creating jobs and better living conditions

  16. IBRD loans and IDA credits in 2005

  17. International Monetary Fund • International organization that regulates the global financial system by using the economic policies of its member countries • In particular, policies dealing with exchange rate and the balance of payments • Formed with the objective of stabilizing international exchange rates, promoting open markets and economic growth • Does this by using the money deposited into the fund by member countries and lending it to countries experiencing economical difficulties

  18. International Monetary Fund Pros Cons • Encourages open markets and a more globalized economy • Promotes high employment rates which leads to further economic growth • Stabilizes currency exchange rates • The International Monetary Fund only guaranteed stabilization loans up to a certain amount • If an exchange rate began to fall rapidly, the fund would not be able to sufficiently boost the value of the currency

  19. Currency Exchange Today • The Bretton Woods System ended in 1971, when President Nixon canceled the convertibility of the US dollar to gold • Today, currencies have returned to the floating exchange rate • How does the US dollar fare today? • 1 US Dollar = .7402 Euros • 1 US Dollar = .6292 Pounds • 1 US Dollar = 83.375 Yen

  20. Economic Aftermath • The Great Depression had many effects on the economic policies of the United States and on many other countries throughout the world • The lessons learned from this period in history will continue to impact the world and future economic policies

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