The original Ponzi scheme promised investors a return based on buying what? What did he do with the investment money?
US mail stamps were supposedly purchased in other countries for less than they were worth.
The money from newer investors was given to older investors to help spread claims that it was a real investment.
The money from newer investors was given to older investors to help spread claims that it was a real investment.
Why did prices inflate in the Florida real estate bubble? What should prices have been based on? What happened to Miami specifically?
They were based on a feeling that prices would just continue to rise.
Prices should have been based on supply and demand.
Miami was the center of the bubble and was hit by a hurricane, destroying many worksites.
Prices should have been based on supply and demand.
Miami was the center of the bubble and was hit by a hurricane, destroying many worksites.
Fisher, a notable economist of the time, theorized on the speculative bubble at the time. Where did he feel the economy was?
Hoover also chimed in saying that "the nation had reached a level of prosperity..." that would completely eradicate what?
Hoover also chimed in saying that "the nation had reached a level of prosperity..." that would completely eradicate what?
Fisher saw the economy at a permanent high plateau. He felt no-one had anything to worry about.
Hoover thought the prosperity would eradicate poverty.
Hoover thought the prosperity would eradicate poverty.
Explain the Real Bills Doctrine and why it was enacted.
The Real Bills Doctrine aimed to stop or reduce speculative stock market loans by banks. This was enacted to increase loans targeting at firms' investments in capital.
The Fed limited the use of the discount window to banks whose own loans were backed by "real bills" (loans with tangible collateral).
The Fed limited the use of the discount window to banks whose own loans were backed by "real bills" (loans with tangible collateral).
The 1st wave of bank failures happened in . Mostly small, rural banks in the and failed. The Bank of the United States failed, causing confusion because of its name even thought it had no connection to the government at all, and was the largest bank to have failed up to that point.
Late 1930
South and Midwest
South and Midwest
What did the Fed do about bank failures? What did this cause solvent banks to do and what were the effects of it?
The Fed did nothing, even though it should have acted as a lender of last resort.
Banks "shored up" reserves by reducing outstanding loans.
This decreased M,
which decreased C and I,
which decreased the GDP. (M=kPY)
Banks "shored up" reserves by reducing outstanding loans.
This decreased M,
which decreased C and I,
which decreased the GDP. (M=kPY)
The second wave of bank failures came in of . Several large international banks in and were failing. On top of this, Britain left the , which fueled panic. How did Britain's decision effect the US?
Spring/Summer of 1931
Austria and Germany
Gold standard
Britain was the model for a sound banking system, so when they stopped payments in gold for paper money, people began to worry. They hoarded gold, which decreased the amount of money in banks which in turn decreased M that led to greater decreases in P and Y.
Austria and Germany
Gold standard
Britain was the model for a sound banking system, so when they stopped payments in gold for paper money, people began to worry. They hoarded gold, which decreased the amount of money in banks which in turn decreased M that led to greater decreases in P and Y.
The third wave of bank failures happened in . This was the worst run yet with banks closing and total deposit losses of $ billion. What was the Fed's response?
early 1933
4,000 banks closing
total deposit losses of $3.5 billion
The Fed actually INCREASED the DR. This was the exact opposite of what they should have done. It further reduced M.
4,000 banks closing
total deposit losses of $3.5 billion
The Fed actually INCREASED the DR. This was the exact opposite of what they should have done. It further reduced M.
In March of 1933, FDR imposed a 1-week bank holiday. Explain the holiday. What was its impact?
Banks shut down for 1 week and the government took that time to inspect them for solvency. If they weren't solvent, they wold be dismantled in an organized way so that as many depositors as possible got repaid.
Impact: It worked! Restored confidence in the banking system.
Impact: It worked! Restored confidence in the banking system.
According to the Monetarist Interpretation of the Great Depression, what was the primary cause? What caused the decrease in M? Monetarists view the higher ratio of money to GDP as evidence of what?
Primary cause: Decline in M
banks surviving bank failure increased their reserve holdings.
High money to GDP ratio is evidence of hoarding.
banks surviving bank failure increased their reserve holdings.
High money to GDP ratio is evidence of hoarding.
What is the main criticism to the Monetarist point of view? What is the Monetarist response?
Criticism: The ratio of money to GDP is low, but why is it increasing? Money supply is decreasing slower than GDP, so there should be enough money to support the level of output.
Response: There was money, it just wasn't circulating. Money supply figures can't account for this.
Response: There was money, it just wasn't circulating. Money supply figures can't account for this.
Why was their a power struggle between the NY Fed branch and the Fed board of directors? Who was Benjamin Strong?
The NY branch was protesting for expansionary monetary policy while the Board refused.
Benjamin Strong was the former president of the NY Fed and preached expansionary policy, but died in 1928.
Benjamin Strong was the former president of the NY Fed and preached expansionary policy, but died in 1928.
The 1932 Federal Reserve Annual Report proved that the Board of Directors didn't understand the magnitude of the problem. While they had good data, they were looking at the 1 interest rate, which was decreasing. They should have been looking the 2 interest rate, which was increasing. In addition to this, the Fed was concerned that buying bonds would do what (2 things)?
1) Nominal
2) Real
Reason 1) Fed was concerned that buying bonds would decrease gold supplies, possibly taking the Fed off the gold standard.
Reason 2) Fed was concerned that buying bonds would reduce the necessity for DR commercial borrowing, which would reduce interest payments to the Fed.
2) Real
Reason 1) Fed was concerned that buying bonds would decrease gold supplies, possibly taking the Fed off the gold standard.
Reason 2) Fed was concerned that buying bonds would reduce the necessity for DR commercial borrowing, which would reduce interest payments to the Fed.
What is the Monetarist response to Temin's critique?
Real interest rates are what matters because they are what affect lender/borrower decision making, and it was clearly rising.
Since the price level was decreasing, the purchasing power of money increased, so the interest rate should be increasing.
Since the price level was decreasing, the purchasing power of money increased, so the interest rate should be increasing.
According to the Debt Deflation Interpretation, why did credit markets slow or crash (2 reasons)?
1) Stock market was declining, so collateral was limited
2) banks severed long term relations and raised interest rates, limiting access to credit for households (making it difficult to spend)
2) banks severed long term relations and raised interest rates, limiting access to credit for households (making it difficult to spend)
Flashcard set info:
Author: savhighsmith
Main topic: Economics
Topic: History of Economics
School / Univ.: UGA
City: Athens
Published: 11.12.2010
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