Q14. What policy instruments were deployed to contain the great economic depression?

Model Answer:

Introduction

The Great Economic Depression of the 1930s was a global crisis that required unprecedented policy interventions. Governments adopted various instruments to stabilize economies and restore growth.

Body

Policy instruments to contain the great economic depression

1. Monetary Policy: Central banks lowered interest rates to encourage borrowing and investment, aiming to increase the money supply and stimulate economic activity amid deflationary pressures.
2. Fiscal Policy: Governments increased public spending on infrastructure projects, creating jobs and boosting demand, exemplified by the New Deal in the United States.
3. Regulatory Measures: Financial regulations were implemented, such as the Glass-Steagall Act, to prevent bank failures and restore public confidence in the financial system.
4. Trade Policies: Countries imposed tariffs and quotas to protect domestic industries, although this led to retaliatory measures and a decline in global trade.
5. Social Welfare Programs: Governments established unemployment benefits and social security systems to support the vulnerable, alleviating poverty and maintaining consumer spending during economic downturns.
6. Public Works Administration: Initiatives like the Public Works Administration in the U.S. funded large-scale projects, enhancing infrastructure and providing immediate employment opportunities for the jobless.

Conclusion

The policy responses to the Great Depression highlighted the need for coordinated government intervention. These instruments laid the groundwork for modern economic policies and recovery strategies. 

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