The Great Depression: Gold Standard's Economic Impact Analysis

The essay provides an in-depth analysis of the economic dynamics during the Great Depression, with a particular focus on the role of the Gold Standard. It discusses how the Federal Reserve's decision to increase interest rates contributed to the stock market crash of 1929, highlighting the influence of maintaining the Gold Standard at that time. Furthermore, it examines how adherence to the Gold Standard exacerbated financial crises globally by hindering expansionary monetary policies, thereby intensifying deflation and economic turmoil. The analysis also covers how early abandonment of the Gold Standard enabled quicker recovery for some nations through flexible monetary policies. By comparing countries that abandoned the standard early with those that clung to it, the essay underscores the significance of monetary policy flexibility in overcoming financial crises.

Running head: INTERNATIONAL ECONOMICS
International Economics
Name of the Student
Name of the University
Author Note

1INTERNATIONAL ECONOMICS References
Table of Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................2
Answer 3:.........................................................................................................................................3
Answer 4:.........................................................................................................................................3
References........................................................................................................................................5

2INTERNATIONAL ECONOMICS References
Answer 1:
The Great Depression of 1929, which is until now one of the most destructive economic
phenomena was in existence for almost a decade, mainly had its origin in the USA. The main
policy blunder which the central bank of the country, the Federal Reserve did at that time was
that it constantly kept on increasing the rate of interest in the country, even during the time of
recession which started in August 1929. This in its turn led to a massive crash in the stock
market in the last quarter of the same year (Berton, 2012). Another factor, which contributed to
the decision of the Federal Reserve of raising the rate of interest to preserve the value of the
dollar was the Gold Standard which existed at that point of time.
Answer 2:
The Gold Standard, which prevailed in the global economy at the time when the Great
Recession struck the international economic scenario, was basically designed and implemented
to maintain a stability in the foreign currency and exchange scenario. However, this standard also
had its contribution in increasing the effects of the Great Depression. To maintain the Gold
Standard and to prevent the gold outflows, the central banks all over the world prevented
themselves from taking any expansionary policies, which in its turn, in the period of Great
Depression and deflation, increased the financial crisis even more (Temin, 2016, pp. 144-153).

3INTERNATIONAL ECONOMICS References
Answer 3:
During the time of the Great Depression of 1929, the Gold Standard was still prevailing
in the global economy. Though this standard was supposed to bring back stability in the financial
sector of the world, this clubbed with the financial turmoil in the economy, aggravated the crisis.
The Great Depression, which started with a huge stock market crash, led to a lack of confidence
in the investment sector and was also followed by a deflationary state (Brunner, 2012). In this
situation, instead of taking expansionary monetary policies, the central banks of many countries
resorted to decreasing money supply and taking contractionary policies in order to stop the
outflow of gold and to safeguard their gold reserves, which in turn aggravated the financial crisis
even more.
Answer 4:
With the onset of the Great Depression of 1929, many countries abandoned the Gold
Standard, which in turn helped the countries to recover early from the acute financial crisis. The
countries, which abandoned the Gold Standard early, had the provision of engaging in the
expansionary monetary policies, which in turn helped the economies of these countries as they
could manipulate their supply of money and levels of prices, which in turn helped in bringing
flexibility in the economy of the country (Eichengreen, 2012, pp. 117-134).
The countries, which did not abandon the Gold Standard early, could not bring this
liquidity in the financial market, which led to a prolonged suffering on their part. On the other

4INTERNATIONAL ECONOMICS References
hand, the countries which let go off the Gold Standard early could get out of the constrained
monetary policy framework and their fear of outflow of gold reserves, which in turn helped the
countries to get out of the acute financial crisis more smoothly.

5INTERNATIONAL ECONOMICS References
References
Berton, P. (2012). The Great Depression: 1929-1939. Anchor Canada.
Brunner, K. (Ed.). (2012). The great depression revisited (Vol. 2). Springer Science & Business
Media.
Eichengreen, B. (2012). When currencies collapse: will we replay the 1930s or the
1970s?. Foreign Affairs, 117-134.
Temin, P. (2016). Great Depression. In Banking Crises (pp. 144-153). Palgrave Macmillan UK