1.What is the Friedman-Schwartz hypothesis? What was the argument they put forwa

Question

1.What is the Friedman-Schwartz hypothesis? What was the argument they put forward in their Monetary History? (Note: Theirs is not an argument about the ultimate causes of the Great Depression.) Answer in one or two sentences.

2. Give an alternative explanation for why the Fed did not act more aggressively to combat the economic downturn in the early 1930's.

3. What should the Fed have done from 1930-1933, according to Friedman and Schwartz?

4. Describe in one or two sentences either the "Keynesian" or the "liquidationist" explanation of the Great Depression.

5. In one or two sentences describe the evidence that monetary policy did not contribute much to the great depression.

6. How did the outflow of gold reduce the money supply during 1930-1933? What did the Fed do to prevent greater outflows? Note that your answer to this question will be related to your answer to #2.

Explanation / Answer

1) Friedman Schwartz hypothesis states that monetary shocks can result in output shocks. Decrease in money supply leads to decrease in output. Increase in money supply leads to increase in output.

The historical reference given by them is the scenario of great depression. Declines in money multiplier or decrease in money supply was the major reason of great depression and depression could be rectified increasing the money supply.

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