For your notes

Your notes should answer the following questions!

If you don't know what to write: Write the question & answer!

1.  What mistake did the Federal Reserve make in the 1920s?

2.  How did banks respond to the Federal Reserve’s decisions?

3.  How did Federal Reserve decisions impact the Great Stock Market Crash of 1929?

4.  Describe the state of the economy from 1929 to 1933 based on the charts at the station.

Federal Reserve Mistakes

Remember, the Federal Reserve was formed in 1913 during the Progressive Era to regulate the money supply.  But, Federal Reserve officials did not have experience monitoring the overall economy.

Throughout the 1920s, the Federal Reserve kept interest rates low which supported growth in the stock market.  Keeping the interest rates low also encouraged the banks to make risky loans. The low interest rates also led businessmen to think the economy was expanding so they borrowed more money to expand production.  That led to overproduction at a time when prices were already falling.

Then the Fed made another mistake; it raised interest rates in 1928 and 1929, which made it more expensive to borrow money and worsened the effects of the stock market crash.

Examine the charts at this station to see how the Great Depression affected the economy and people’s lives