Question

How did government respond to the crash of 1929 and the financial crisis of 2008

Answer 1

Government response to crisis::

1. Mitigating Financial Crises

2. Minimizing the effects of a financial crisis is to maintain confidence in the safety of the banking system

3. The Fed lowered its key federal funds rate to provide additional liquidity to the financial system, expanded the range of collateral it would willing to accept in return for loans, and provided direct lines of credit to a broader variety of financial institutions (previously only commercial banks could borrow directly from the Fed).

4. The Government Rescues Prominent Financial Firms

5. The Bailout plan

The government took these actions in order to provide stability to the financial markets, support the availability of mortgage finance, and protect taxpayers from excessive losses. Following the stock market crash of 1929, policy makers committed a trio of errors. They tightened monetary policy, restricted fiscal spending and failed to enhance confidence in the banking system. It is widely believed that these mistakes exacerbated the effects of the depression that followed.
Policymakers have learned from these mistakes, and those lessons were put to good use during the credit crisis of 2008, during which the Fed provided enormous amounts of liquidity to the financial system. The government also increased its spending, thereby providing fiscal stimulus to the economy. Finally, the government took extraordinary measures to secure confidence in the financial system through a variety of guarantees, insurance programs, loans and direct investments.