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Board of Governors of the Federal Reserve System
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Federal Reserve Board of Governors

The Federal Reserve and the Financial Crisis: Discussion Questions

Written by Stephen Buckles, Vanderbilt University

Note to instructors: The four lectures are divided into video clips covering specific subjects discussed by Chairman Bernanke. Most of the clips range from one to four minutes in length, 
with a few as long as 10 minutes. 

Questions are provided to assist instructors in guiding class discussion following the viewing of a clip. The questions could be distributed prior to showing a clip if so desired. The majority of the questions focus on material contained within each clip; some extend the discussion by asking students to consider the implications of the material within each clip or to explain how a specific policy might work.

Lecture One: Origins and Mission of the Federal Reserve
Lecture Two: The Federal Reserve after WWII
Lecture Three: The Federal Reserve's Response to the Financial Crisis
Lecture Four: The Aftermath of the Crisis

Lecture One: Origins and Mission of the Federal Reserve

Lecture 1, Video Clip 1: A central bank and its mission
Questions for Classroom Discussion:
  1. What is the mission of a central bank?
  2. What is the difference between the economic stability and the financial stability parts of the mission of a central bank? 
  3. Explain and give examples of how those missions are related to each other.

Lecture 1, Video Clip 2: The policy tools of central banks
Questions for Classroom Discussion:

  1. What are the policy tools that central banks have?
  2. Explain how monetary policy can function to achieve economic stability. What is the role of interest rates? Explain the process of how the Fed changes interest rates and how those changes encourage an appropriate increase or decrease in spending in the economy?
  3. Analyze how a second tool, the provision of liquidity, can help to promote financial stability.  Describe how the lender-of-last-resort function of a central bank can reduce runs on banks. 
  4. Discuss the regulatory role of a central bank.  What is its purpose? 

Lecture 1, Video Clip 3: Origins of central banking
Questions for Classroom Discussion:

  1. Why were the first central banks established?

Lecture 1, Video Clip 4: Financial panics
Questions for Classroom Discussion:

  1. How would long-term illiquid assets and short-term liquid liabilities contribute to conditions for a financial panic?
  2. Why is a bank run so difficult to stop?
  3. What is a financial panic and what can cause a financial panic?
  4. Describe how a financial panic can lead to loss of income and employment in sectors of the economy seemingly unrelated to the financial sector.

Lecture 1, Video Clip 5: Lender of last resort
Questions for Classroom Discussion:

  1. What does "lender of last resort" mean?
  2. Analyze why liquidity is such an important issue.
  3. What is the difference between illiquid banks and insolvent banks? How does that difference affect the lender-of-last-resort role of central banks?
  4. How does the lender of last resort help prevent bank runs? And by doing so, the chances of a broader financial panic?
  5. Why might a bank run worsen if a bank has to sell assets in response to depositors' withdrawals?

Lecture 1, Video Clip 6: Financial stability prior to the Fed
Questions for Classroom Discussion:

  1. Describe the need for financial and economic stability that led to the establishment of the Federal Reserve in 1914.
  2. Summarize the role of monetary policy in affecting short-term interest rates.

Lecture 1, Video Clip 7: The gold standard
Questions for Classroom Discussion:

  1. What is a gold standard?
  2. Identify two possible problems with a gold standard and explain why those problems are created by a gold standard.
  3. Explain how shocks can spread among countries under an international gold standard. 
  4. If interest rates are different in two countries that are both on an international gold standard, what will likely happen? 
  5. What might cause a run on gold in a country?  What are the consequences of a run?
  6. How can a gold standard create stable prices over a long-run period? 
  7. How can a gold standard cause a deflationary period?  What is undesirable about falling prices?
  8. Compare the costs and the benefits of a gold standard.

Lecture 1, Video Clip 8: Establishment of the Federal Reserve
Questions for Classroom Discussion:

  1. What economic conditions led to the establishment of the Fed in 1913? 
  2. How would you describe the economic and financial stability mission of the Fed?
  3. What is the decentralized structure of the Fed and why was it designed in that fashion?  Has this made the Fed a more stable, longer-lasting institution? Why or why not?

Lecture 1, Video Clip 9: The Great Depression
Questions for Classroom Discussion:

  1. Summarize the economic conditions and events during the Great Depression. Discuss the stock market crash, the change in price levels, the fall in output, the rise in unemployment, and the increase in the number of bank failures.
  2. Describe the major causes of the Great Depression and explain how each of them may have contributed.

Lecture 1, Video Clip 10: Policy during the Great Depression
Questions for Classroom Discussion:

  1. Describe monetary policy during the Great Depression.
  2. What monetary policy errors were made? Why were those errors committed?
  3. Summarize the Fed's policy as a lender of last resort during the Great Depression and evaluate its effects.
  4. Discuss the role of the gold standard during the Depression and the resulting level of interest rates in the economy.

Lecture 1, Video Clip 11: President Roosevelt's economic policies
Questions for Classroom Discussion:

  1. Summarize the role of deposit insurance in ensuring financial stability.
  2. Why would the abandonment of a gold standard positively affect economic conditions?
  3. List the primary monetary and fiscal policies that were used during the Depression. Evaluate the effectiveness of those policies. What can we learn about policy today from that experience? What would be a more effective set of solutions?
Last update: October 13, 2016