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Finance & Accounting
Pages 3 (753 words)
Article Review Then and Now: Fed Policy Actions during the Great Depression and Great Recession This paper would present a review of the article “Then and Now: Fed Policy Actions during the Great Depression and Great Recession” by David A Lopez. The ‘Great Recession’ that engulfed the United States and subsequently the whole world during 2007-2009 was very severe; however the magnitude of its financial impact was nowhere as devastating as that of the ‘Great Depression’ during 1929-1933…
The Fed had raised the interest rates to control the bullish trend that was prevalent then, however, in addition to lowering the huge borrowings made for stock purchases; it also had some unintended outcomes. Capital expenses for the purchase of equipments and other infrastructure needs were hampered, which resulted in a major decline of industrial production and consequently decline in output (Lopez, 2011). The Fed fell short in averting the four colossal banking panics from assaulting the US economy. Owing to the prevalent Fed policies then, many of the banks became cash starved and were not able to obtain emergency funds from the Federal Reserve. The impact of the subsequent bank panics were disastrous resulting in price level decline and deflation. Consequently, the inflation adjusted interest rates increased and people were burdened with higher debts resulting in bankruptcies and extensive defaults. Furthermore, the rise in the real borrowing rates also made the consumers as well as businesses suffer, with further depressed the economy. ...
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