Chapter 1: Problem 37

If you could blame just one person or group of people that caused the Great Depression, which one of the following would you choose? (LO1) a) President Herbert Hoover b) President Franklin Roosevelt c) the Federal Reserve Board d) the bankers

Short Answer

Expert verified

In my opinion, the Federal Reserve Board (c) holds the most responsibility for causing the Great Depression. Their failure to prevent the collapse of the banking system and their adherence to the gold standard contributed significantly to the severity of the depression. While other factors, such as the actions of President Herbert Hoover and the bankers, played a role in deepening the crisis, the Federal Reserve's monetary policy decisions had a more direct and substantial impact on the economy.

Step by step solution

Understand the context of the Great Depression

The Great Depression was a severe worldwide economic depression that took place mainly during the 1930s, beginning in the United States. It had devastating effects on the economy, leading to high unemployment rates, widespread poverty, and the collapse of many businesses and industries.

Analyze the role of President Herbert Hoover

President Herbert Hoover was in office when the Great Depression began. He believed in limited government intervention and a focus on individualism. Hoover's policies, such as high tariffs and public works programs, were not enough to stimulate economic growth, and many argue that his inaction and insistence on market self-correction led to a deepening of the depression.

Analyze the role of President Franklin Roosevelt

President Franklin D. Roosevelt succeeded Hoover and implemented a series of economic policies and programs, collectively known as the "New Deal," aimed at addressing the economic crisis, providing relief to the unemployed and rebuilding the economy. While some critics argue that the New Deal prolonged the depression, most economists and historians agree that it played a significant role in the eventual recovery of the economy.

Analyze the role of the Federal Reserve Board

The Federal Reserve Board, which is responsible for setting and implementing monetary policy, has been criticized for its actions during the Great Depression. Critics argue that the Fed's failure to prevent the collapse of the banking system and its adherence to the gold standard contributed significantly to the severity of the depression.

Analyze the role of the bankers

The actions of bankers and other financial industry leaders have also been blamed for the Great Depression. Some argue that their speculative and irresponsible lending practices, particularly in the area of margin loans for stock purchases, as well as their role in the stock market crash, played a significant role in the economic crisis.

Form an opinion based on the analysis

In your opinion, which of these entities or individuals was most responsible for causing the Great Depression? Keep in mind that this is an opinion-based question and that there is no definitive answer. Use the analysis of the roles and actions of President Herbert Hoover, President Franklin Roosevelt, the Federal Reserve Board, and the bankers to form your opinion.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Understanding Economic Depression

An economic depression is a prolonged period of significant decline in economic activity across an entire economy. It is characterized by factors such as high unemployment rates, deflation, a decrease in consumer spending, and widespread bank failures. During the Great Depression, all these indicators were present, resulting in hardship for millions of people.

The root causes of such severe economic downturns can be complex and multifaceted. They typically involve a combination of external shocks, poor governmental policy responses, systemic banking failures, and reduced consumer and business confidence. The Great Depression was particularly severe due to a combination of these factors, including the stock market crash of 1929, banking instability, and failure of international trade.

Exploring New Deal Policies

The New Deal policies introduced by President Franklin D. Roosevelt were a series of programs and reforms aimed at revitalizing the American economy and providing relief to those affected by the Great Depression.

Significant aspects of the New Deal included:

Social Security Act: Established a system of old-age benefits and unemployment insurance.
Works Progress Administration: Created jobs for millions of unemployed Americans through public works projects.
Civilian Conservation Corps: Offered environmental conservation work to young men.
Banking Reforms: Including the Federal Deposit Insurance Corporation (FDIC), which insured bank deposits to prevent bank runs.

Though debated by historians and economists, the consensus tends to favor the effectiveness of New Deal policies in providing immediate economic relief and laying the groundwork for future growth.

Monetary Policy During the Depression

The role of monetary policy during the Great Depression was crucial, as the actions or inactions of the Federal Reserve had profound effects on the economy.

Factors involving monetary policy that were implicated in worsening the depression include:

The inability to stabilize the banking system, leading to widespread bank failures.
Misguided adherence to the gold standard, which limited the Fed's ability to increase the money supply.
Insufficient provision of liquidity to the struggling banking sector.

Monetary policy mistakes contributed to deflation and reduced the amount of money available for businesses and consumers, further aggravating the economic downturn.

Banking Practices and Their Impact

The banking practices prior to and during the Great Depression are often cited as a significant factor in the economic collapse. Risky lending behaviors, including extensive loans to stock market speculators, made banks vulnerable to sudden shifts in the economy.

Once the stock market crashed, many investors defaulted on their loans, and public confidence in the banks plummeted, leading to mass withdrawals known as bank runs. Many banks lacked the liquidity to cover these withdrawals and were forced to close their doors.

It was not only the practices of the time that were problematic; the lack of regulations and safeguards contributed to the banking sector's instability. Measures such as the Glass-Steagall Act were introduced in response to these failures to separate commercial and investment banking, aiming to reduce speculative risks within the industry.