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What Ended the Great Depression?

Published online by Cambridge University Press:  03 March 2009

Christina D. Romer
Associate Professor of Economics, University of California, Berkeley, Berkeley, CA 94720.


This paper examines the role of aggregate-demand stimulus in ending the Great Depression. Plausible estimates of the effects of fiscal and monetary changes indicate that nearly all the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. A huge gold inflow in the mid- and late 1930s swelled the money stock and stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. That monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942.

Copyright © The Economic History Association 1992

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