Question

what was the Federal Reserve’s role during the Great Depression.

Answer 1

The Federal Reserve, the central bank of the United States, was created in 1913. Not only did the Federal Reserve fail to prevent the Great Depression but it was primarily responsible for its length and severity. The Federal Reserve controls the money supply and would never exist in a true free market economy.

The depression was caused by a number of serious weaknesses in the economy. ... America's "Great Depression" began with the dramatic crash of the stock market in october 1929 when 16 million shares of stock were quickly sold by panicking investors who had lost faith in the American economy.

Most of us probably learned that “unfettered” and “unregulated” capitalism in the 1920s led to the Great Depression. Some have similarly blamed capitalism for the current economic crisis. But just like today, there was not pure free market capitalism in the 1920s. Second, there are the monetarists, who believe that the Great Depression started as an ordinary recession, but that significant policy mistakes by monetary authorities especially the Federal Reserve caused a shrinking of the money supply which greatly exacerbated the economic situation, causing a recession to descend. The stock market crash of 1929 touched off a chain of events that plunged the United States into its longest, deepest economic crisis of its history. It is far too simplistic to view the stock market crash as the single cause of the Great Depression. A healthy economy can recover from such a contraction.

Federal Reserve Chairman Ben Bernanke and the late Nobel Prize-winning economist Milton Friedman blame the Federal Reserve for the Great Depression. But they do so for the wrong reasons. While Milton Friedman was correct on many economic issues, he was wrong on monetary policy. He was a monetarist who incorrectly believed that the money supply determines the level of economic activity. In his view, an increase in the money supply will lead to more economic activity.