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Great Contraction 1929-1333

Great Contraction 1929-1333. Keys Ideas/Topics/Issues (F&S 7-7.5) % Δ M , % Δ v , % Δ P , % Δ y Closer look at velocity Importance of HPM , D/C , D/R => % Δ M Importance of Great Contraction Timeline of key events (1929-33) Why existence of Fed prevented 1907-type solution

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Great Contraction 1929-1333

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  1. Great Contraction1929-1333 Keys Ideas/Topics/Issues (F&S 7-7.5) • %ΔM, %Δv, %ΔP, %Δy • Closer look at velocity • Importance of HPM, D/C, D/R => %ΔM • Importance of Great Contraction • Timeline of key events (1929-33) • Why existence of Fed prevented 1907-type solution • Closer look at bank failures • Why were they important? • Why did they happen? • Why was Fed relatively unconcerned?

  2. Great Contraction1929-1333 Time Line of Key Events: • Fed “tightens” money to fight stock-market speculation – 1928-29. • FRB-NY raises discount rate from 3.5% to 5% in early 1928. • Fed securities holdings drop from over $600 to $210 million (year-end 1927 to August 1929). • FRB-NY raises discount rate from 5% to 6% in August 1929. Result: Money stock declines slightly from April 1928 to August 1929 (only other 16-month declines are 1907-08 and 1920-21). • Stock Market Crash – October 1929

  3. Great Contraction1929-1333 Time Line of Key Events: First Banking Crisis – October 1930 Second Banking Crisis – March 1931 Britain’s Departure from Gold – September 1931 Large-Scale Open-Market Purchases – April 1932 Banking Panic of 1933

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