Monetary policy from 1929 to 1933, and again in 1937 to 1938, was characterized by
A) monetary expansion, which led to deflation.
B) monetary contraction, which led to deflation.
C) monetary expansion, which led to inflation.
D) monetary contraction, which led to inflation.

Question

Quizplus · Accepted Answer

Monetary policy from 1929 to 1933 was characterized by contraction, as the Federal Reserve raised interest rates and reduced the money supply in an attempt to stem speculative lending and inflation. This policy exacerbated the economic downturn of the Great Depression, leading to deflation. The second period of monetary policy from 1937 to 1938 also involved contraction, as the Federal Reserve raised reserve requirements and reduced lending in response to concerns about inflation. This policy again led to deflation and contributed to a new economic downturn.

Monetary Policy from 1929 to 1933, and Again in 1937