ABSTRACT
This chapter examines the relationship between the international gold standard, aggregate demand and the price level during the 1930s. It analyses the role that exchange rate crises played in the fluctuations of US aggregate demand during 1931–1938. The chapter looks at Roosevelt's 1933 policy of dollar depreciation. It also examines how the 'gold panic' of early 1937 and the 'dollar panic' of late 1937 contributed to a sharp recession in 1937–1938. The price of gold is fixed under a gold standard. Although the world monetary gold stock declined in July, the prices of commodities began rising as fears of a revaluation of the dollar subsided. Sumner shows that changes in the world monetary gold stock seem highly correlated with exchange rate crises. The efficient market theory suggests that financial markets respond almost immediately to important news events. The efficient market theory suggests that financial markets respond almost immediately to important news events.
