Reading Questions - Chapter 23

Question 1

The Austrian School blames the Great Depression on “distortions” that built up in the 1920s. What were those distortions?

Answer 1

• the stock market and real estate booms
• one that didn’t show up in commodity prices, but rather in the prices of assets such as stocks and real estate.
  
  • Therefore the New Deal policies only delayed recovery.

Question 2

What was the Smoot-Hawley tariff? Does the text regard it as a major cause of the Depression?

Answer 2

• June 1930, raised tariffs on a bunch of imported goods, mostly agricultural goods
• Economicsts regard Smoot-Hawley Tariff as being a minor cause of the Great Depression.

Question 3

How does Ben Bernanke, formerly the head of the Federal Reserve, explain the persistence of the Great Depression?

Answer 3

• Nonmonetary effects
  
  • failure of the banks made it harder for smaller businesses to get the credit needed to keep their businesses and employment opportunities operational.
  • Deflation added to the inability of those to pay off their debts, creating a break down of long-term relationships between lenders (banks) and borrowers.

Question 4

Who was Mary Bailey? What did she do in the Depression?

Answer 4

• Mary Bailey was a ficitonal character in a movie (It’s a Wonderful Life)
  
  • She gives money saved for her second honey moon to the bank to avoid a bank run.
  • A parallel to what the Federal Reserve should have done.