2.6 Great Depression/Financial Crisis Flashcards
how did the USA use fiscal policy in the Great Depression
Roosevelt’s New Deal provided lots of government spending on infrastructure (Keynesian approach to increase AD)
the government employed lots of people and started big construction projects such as The Golden Gate Bridge and Hoover Dam
protectionism increased to increase domestic production and consumption
entry into WWII boosted government spending
how did the USA use monetary policy in the Great Depression
overall there was a disagreement over the effectiveness of monetary policy
the Bank Rate was cut from 6% to 4%
they strengthened the exchange rate as investors were selling dollars to buy gold
use of contractionary policy that further weakened the flow of money
how did the UK use fiscal policy in the Great Depression
the government prioritised a balanced budget with contractionary policies to avoid crowding out
cut public sector wages and unemployment benefits, which further reduced consumption and confidence
raised income tax which decreased disposable income and confidence
introduced a 10% tariff on all non-British colony imports to increase production and consumption domestically
how did the UK use monetary policy in the Great Depression
stopped using the gold standard which had appreciated the Pound
the Pound depreciated by 25% which increased exports and thus AD
Bank Rate lowered from 6% to 2% which increased AD
how did the USA use fiscal policy in the 2008 Financial Crisis
Keynesian approach with lots of government spending and expansionary fiscal policy
banks were supported by the government
government acts that injected vast amounts of money into the economy which increased AD
how did the USA use monetary policy in the 2008 Financial Crisis
Bank Rates were cut from 5.25% to 0.25%
three rounds of QE injected trillions into the money supply
how did the UK use fiscal policy in the 2008 Financial Crisis
Keynesian approach with significant government spending and expansionary fiscal policy
banks were supported by the government
tax cuts
injections and investment
later a switch from expansionary fiscal policy to austerity
this delayed the recoveryh
how did the UK use monetary policy in the 2008 Financial Crisis
Bank Rates were cut from 5.75% to 0.5%
several rounds of QE took place, putting more money in the money supply
