Question

2. Write a one page summary paper on "Why the Federal Reserve did not act as the lender of last resort for all the banks that failed during the Great Depression?"

3. Do a comparison on the wages earned in the 1970's to wages earned today, by converting the 1970 wages to wages today.

Answer 1

2.

The inability of Fed to avert or its inability to respond effectively to Great depression includes;

Fed policy went from enlightened to no light and allowed money supply of fall between 1929 to 1933. Its failure to understand the difference between the nominal and real rate of interest and its reliance on misleading measures of bank reserves. Some critics argued that there was a flaw in the federal reserve act, which was made to fit the uniquely bifurcated regional structure of the US banking system. That structure had strict limitations on bank branching.

In response to Great Depression, Fed's lending power was greatly expanded and the collateral restriction was loosened. Also directly lending to nonbank private entities in unusual circumstances, new interest rate ceilings were set.

3.

wages earned in 1970's and wages earned today are from diverse time periods where minimum wages in the 1970s was $1.6 and today it is $7.25 an hour. The hike is with respect to adjustments in inflation and dollar value has changed over the years, production, as well as demand for labor, has diversified. More skilled labor is required to produce capital-intensive output and technological advancement has changed the bargaining power and minimum wage criteria. The standard of living has also changed along with prices inflating over the given period.