During the Great Depression from 1929-33, the Fed fought the extremely deep recession (the Unemployment Rate reached 25%) by reducing interest rates to record lows. They described their policy as "easy money." Yet, years later, Milton Friedman's Nobel- Prize-winning monetary studies showed that the money supply declined by 33% during this period.
A. What was the Fed trying to accomplish by lowering interest rates during this period. How would lower interest rates be expected to influence the future path of the economy? Explain.
B. Provide a plausible explanation of why the money supply might have declined during this period despite interest rates declining to nearly 0%.
C. Would you describe this policy as being expansionary "easy money" policy? Why or why not?