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The Great Depression was a devastating economic crisis that began in 1929, characterized by a severe downturn and mass unemployment. This text explores various economic theories explaining its causes, including traditional monetary theory, Keynesian theory, and Irving Fisher's debt deflation theory. It also examines the Federal Reserve's missteps, the role of government intervention, and the importance of economic stabilization policies.
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The traditional monetary theory, championed by Milton Friedman and Anna Schwartz, emphasizes the role of banking panics and a shrinking money supply in causing the Great Depression
The Keynesian theory, named after John Maynard Keynes, points to a dramatic fall in investment and consumer spending as a major cause of the Great Depression
Other theories, such as Irving Fisher's debt deflation theory and the expectations hypothesis, consider the impact of falling prices and negative public sentiment in contributing to the Great Depression
The Federal Reserve's failure to provide sufficient liquidity to the banking system and act as a lender of last resort is widely criticized for contributing to the severity and duration of the Great Depression
Mainstream economists generally agree that a combination of factors, including the Federal Reserve's actions, led to the Great Depression
Monetarists argue that the Great Depression was primarily caused by a banking collapse and the Federal Reserve's failure to take action to lower interest rates and increase the money supply
Keynesian economists advocate for active government intervention, such as deficit spending, to stimulate economic activity during downturns
Irving Fisher's debt deflation theory and the expectations hypothesis highlight the impact of falling prices and negative public sentiment on economic recovery
Economists today largely agree that during a looming depression, it is crucial for the government and central bank to act decisively to stabilize GDP and the money supply
00
The ______ Depression started in ______ and was the worst economic crisis in the industrialized world.
Great
1929
01
Milton Friedman and Anna Schwartz supported the ______ monetary theory, focusing on bank crises and reduced money circulation.
traditional
02
The theory by ______ suggests a sharp decrease in investment and consumer expenditures as a cause for the economic downturn.
John Maynard Keynes
