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Why did the United States experience another recession in 1937 and 1938?
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Great Depression
Unemployed men standing in line outside a soup kitchen, Chicago.
The recession that occurred in the United States between May 1937 and June 1938 was a significant downturn that interrupted the recovery from the initial years of the Great Depression. Several factors contributed to this secondary contraction:
- Monetary Policy: A primary cause was the decision by the Federal Reserve to substantially increase reserve requirements. Driven by concerns regarding potential speculative excess in the economy, this policy shift caused the money supply to stop its rapid growth and subsequently decline.1
- Fiscal Contraction: The economy faced a contractionary impact from fiscal policy, which hindered the momentum of the mid-1930s recovery.1
- Labor Unrest: Increased labor unrest during this period is believed to have led to a decrease in inventory investment, further contributing to the economic downturn.1
Because the United States experienced this severe second contraction before fully recovering from the initial collapse of the early 1930s, the country remained in a depressed state for nearly the entire decade.1