question 28 & 29

28. In early 2020, some commentators warned that the unprecedented global pandemic crisis would lead to Greater Depression. This type of prediction led many to revisit the Great Depression in the 1930s to see if there is any parallel At the time, no one could rule out the possibility of another depression. Yet many economists believed that the very mistakes that had led to the Great Depression could be avoided this time. What are the policy mistakes that had led to the Great Depression? a. Fed failed to follow Walter Bagehot's dictum that during a financial panic, central banks should lend freely to solvent firms against good collateral at penalty rates. b. Fed allowed the money supply to fall by one-fourth, which likely caused the deflation in the early 1930s. c. Fiscal policy was tightened to pursue a balanced budget. d. The U.S. goverment did not abandon the gold standard until 1933 (the gold standard constrains the monetary policy). e. All of the above are thought to be the policy errors made at the time. 29. Which of the following statements is incorrect? a. Holdings of liquid assets (or access to credit from financial institutions) reduce the likelihood of financial distress. b. Financial imbalances and asset price crashes have been the key source of recessions in the U.S. in recent past. c. The 1918-1919 Great Influenza pandemic did not lead to an economic depression, although it caused significant fatalities around the world. d. L-shaped recovery pattern in Greece in the aftermath of 2007-2009 global financial crisis was in part due to the unavailability of monetary policy tools to the Greek authorities (because of Euro membership)