Milton Friedman and Anna Schwartz looked at Federal Reserve policies in the firs
ID: 1205699 • Letter: M
Question
Milton Friedman and Anna Schwartz looked at Federal Reserve policies in the first few years of the Great Depression. They found two specific events in which Federal Reserve policies amounted to “crimes of omission.” Identify the “crime of omission” that occurred in the last quarter of 1930
a. The Federal Reserve decided to support the Gold Standard and ignored its primary mandate
b. The Federal Reserve allowed banks to fail due to bank runs
c. The Federal Reserve increased the money supply too quickly
d. The Federal Reserve increased the money supply too slowly
e. The Federal Reserve raised the discount rate, but left the Federal Funds rate unchanged
Explanation / Answer
Ans is option e, Fed’s decision to raise interest rates in 1928 and 1929 slowed economic activity in the United States. Because the international gold standard linked interest rates and monetary policies among participating nations, the Fed’s actions triggered recessions in nations around the globe.