What was the role of macroeconomic policy in causing the Great Depression?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Macroeconomic policy had (one can argue) a great deal to do with the coming of the Great Depression and with the fact that the downturn got to be so bad by 1932.

Many historians argue that monetary policy in the 1920s was too loose.  They argue that this monetary policy made it too easy for stock prices to rise in an uncontrolled fashion that led to the crash.  This is an example of macroeconomic policy helping to cause the Depression.

Many historians then argue that President Hoover's macroeconomic policies made the downturn worse after the initial crash.  Hoover chose to maintain low government spending instead of acting (as Keynesians now would) to stimulate the economy.  They argue that this fiscal policy helped to cause the depression to worsen.

In these ways, macroeconomic policies of the government can be blamed to some extent for the coming of the Depression and for how bad it eventually got to be.

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