The great depression - Research Paper Example

The depression drastically changed living standards worldwide as people suffered losses of wealth and regular income. However, the depression initiated several policy responses to change the economic downturn. The period also witnessed the growth of the labor unions and various welfare schemes were introduced by the US government to cater for the unemployed. Several key government regulations and policies were also introduced to counteract the effect of the depression. Some of these policies did not help in improving the situation and contributed to a slower recovery period.

It was only after the World War II that the country’s economy was back on the recovery track with increases in consumer spending and rises in employment (Romer; Smiley). The great depression caused huge declines employment, industrial production and growth and deflation in all countries worldwide. Beginning in the United States in the summer of 1929, the effect of the depression spread far and wide across many countries in Europe and Latin America and in Japan. The depression worsened during late 1929 and lasted up to 1933.

During this period the industrial production in America declined by 47 percent and the GDP reduced by 30 percent. The wholesale price index or the deflation rate slumped by 33 percent and the unemployment rate increased by 20 percent (Romer). Several causes have been attributed to have caused the great depression. Monetary contractions by the Federal Reserve and a general decline in consumer spending are considered to be principle causes that initiated the depression. The stock market grew explosively during the 1920’s with the stock prices reaching its peak in 1929.

In order to curb this rapid rise in stock prices the Federal Reserve increased the interest rates which caused the initial decline in consumer spending. This was followed by a gradual decline in stock prices which eventually led to rapid selling as investors began to lose