The Great Depression (chap 4) Flashcards

1
Q

Bilateral agreement , which where the three main kinds ?

A
  1. Compensation Agreement , effective barter agreement
  2. Clearing Agreement, Bilateral agreement ,each country a bank account in the other country
  3. Payment Agreement ( cover goods and financial transactions) (Germa-Anglo 1937)
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2
Q

Attempts of international cooperation after the Great Depression:

A
  1. The bank for international Settlement (BIS)
  2. The tripartite Monetary Agreement (France,USA,UK)
  3. The Ottawa Agreement (1932) (system of tariffs between commonwealth )
  4. Cartels (commercial companies )
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3
Q

Regional Currency Systems: (after the Gold Standard collapse)

A
  1. Sterling Area
  2. Dollar Area
  3. Exchange Control Area
  4. Gold Bloc (until 1936)
    - Japanese bloc could be also added
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4
Q

Sterling Area (regional currency system):

A
  • Used pounds sterling as an international currency

- United Kingdom, commonwealth (except Canada), several small European countries , much of the Middle East

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5
Q

what is the exchange control system?

A
  • with exchange controls foreign currency transactions are controlled by the central bank (discord trade pattern)
  • a disadvantages was the distortion in trade pattern
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6
Q

in the context of 1930’s, advantages of exchange control system ?

A
  1. They prevented foreign exchange crises

2. They enabled government to pursue expansionary domestic policies, without the worry of escape of financial capital .

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7
Q

Trades restrictions examples: (after gold standard)

A
  1. Smoot-Hawley Tariff (1930)- in U.S

2. Import Duties Act (1932) - in U.K

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8
Q

What is the function of The bank for international Settlement (BIS) ?(post-gold standard)

A
  • Promote cooperation between central banks

- manage German reparations payments

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9
Q

Contemporary explanation to the U.S depression: (at that time)

A
  1. The classical approach
    - Say’s law and self equilibrating powers
  2. The Austrian school
    - Result over investment in the 20’s
    no government intervention
  3. “Liquidationists”
    - viewed as punishment for the excessed of the 20’s
    - believed in allowing the depression to continuo if not encourage deflation
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10
Q

Non-monetary factor that show the weakness in the US economy 30’s :

A
  1. Inequality (main)
  2. the corporate structure
  3. problems with external balances
  4. economics orthodoxy
  5. composition of production
  6. agriculture (main)
  7. A collapse in housing construction (main)
  8. Alvin Hansen
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11
Q

Recents explanation of the US depression:

A
  1. Credit Hypothesis (Ben Bernanke)
    - effect on deflations in the banks
  2. Deflationary Expectation
    - static effect
    - dynamic effect
  3. the stock market crash
    - started it or prolong the depression (dismiss)
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12
Q

what international factor were present in the U.S depression ?

A
  • Charles Kindleberger theory
  • Gold Standard (lack of symmetry)
  • European Financial crisis of 1931
  • Protectionism
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13
Q

explanation of the US depression according to the Credit Hypothesis? (Ben Bernanke)

A
  • The same as debt deflation hypothesis of Fisher but this time, he focus in the effects of deflation in the banks
  • deflation in the price of assets
  • –> less nominal value
  • –>fear insolvency
  • –>cut lending
  • –>focus in secure investment (such as government securities )
  • –> Borrowers were unable to obtain funds
  • Chain reaction , causing more deflation in the market
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14
Q

What is the monetarist explanation of the Great Depression ?

A
  1. The U.S Federal Reserve (The Fed) Policies
  2. The banks failure
  3. Gold Standard
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15
Q

who is Charles Kindleberger? and what effect had in the U.S depression ?

A
  • He was the creator of the theory “Kindleberger”
  • he emphasized that the shift in world economic leadership (London to Washington)
  • The Depression was able to spread from US to other mayor economies:
    1. partly through the mechanism of gold standard (deflationary bias)
    2. Partly the lack of economic leadership from the US, and inability and/ or unwillingness of U.K and U.S
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16
Q

what is Deflationary Expectation Theory about ? (US depression)

A
  • The price decreased of 33% ,
  • The gold standard (by mandating deflation) bore(had) the major responsibility for the slump.

creation 2 possible effects:

  1. the Static Effect (Keynes effect):
  • is expansionary - on consumption
  • based in the fall on prices (fast) and same amount of NOMINAL money (money not causing inflation or deflation), increasing punching power
  1. The Dynamic effect (Mundell effect ):

-is contractionary
-based on expectation of future prices
(if people expected deflation , postpone purchases)

in 1931, Keynes effect overpower the Mundell effect
over-comsunption

17
Q

the stock explanation to the US depression:

A

the stock market crash in 1929 was the start of the slump

  • it already had been dismissed by historian
18
Q

what monetary factors were present in the US Depression?

A
  • Small banks , local banks

- U.S Federal Reserve should have given credit to banks