International Economics for Destructive Economic - myassignmenthelp

Question: Discuss about theInternational Economics for Destructive Economic Phenomena. Answer: 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. 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). 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. 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 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. 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