The US experienced a number of economic recessions and depressions prior to the Great Depression of the 1930s including the Long Depression of the 1870s, the short but sharp depression in 1920-21, and a deep depression from 1839-43. One of the worst occurred following the Panic of 1893 when national industrial activity dropped nearly 30% in 1893 and then another 21% in 1896. Stock market and banking collapses led to a run on gold, as the United States operated under the gold standard at the time. Profits, investment, and incomes plummeted, and debts soared. In response, the Free Silver movement formed in the western states, spear-headed by populist Democratic presidential candidate William Jennings Bryan who advocated that the gold standard be replaced by a bi-metal standard where both gold and silver would be used as a basis of exchange. This proposal was opposed by the wealthy industrialists of the Northeast, who ultimately prevailed in the narrow 1896 presidential election under Republican nominee William McKinley. As such, bimetallism was never enacted.

Using the IS-LM model, demonstrate what might have happened had Bryan won and adopted a bi-metal standard. How would creditors and debtors be affected? What secondary effects to investment, consumption, income, etc. might have occurred because of your answer to the previous part? What might the long-term implications be for the economy? Would the United States, in your judgment, have been better or worse off in the end?