World economy developed greatly in the 20th century. There are many great changes that occurred in 20th century and all these changes had a great impact on the field of economics.The Great Depression of 1929 is one of those events that changed the shape of modern economics forever…
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World economy developed greatly in the 20th century. There are many great changes that occurred in 20th century and all these changes had a great impact on the field of economics.The Great Depression of 1929 is one of those events that changed the shape of modern economics forever. It all started in 1929 and the world trade shrank by more than 50 percent. The great depression is known as the worst economic decline in modern economics history. Employment decreased greatly all over the world and poverty reached new levels. After the great depression new methods of government intervention were introduced and world organizations like International Monetary Fund (IMF) were founded. The causes of this economic disaster are many and they will be the topic of discussion of this essay. These causes will help us understand why the great depression lasted for such a long time and why it could not be stopped even after government intervention. The main reasons of the great depression of 1929 are the stock market crash, the default of Banks, decrease in international demand and decrease in international trade. All these factors caused the world economy to stay in depression for such a long period. Causes of Depression In this section some major issues will be discussed which eventually led to great depression of 1929. Stock Market Crash of 1929 Great depression is market by a stock market crash in October 1929. It is probably the most widely known cause of the great depression. Stock prices plummeted on 29th October and people lost a great amount of money. In order to understand this particular cause we will have to look at the background of the stock market in 1920’s. There is no doubt that 1920’s was a great time for investors in the New York stock market. They were earnings high returns on their investment so many people started to invest money in the stocks (Walton & Rockoff, 2009). Due to highly unregulated stock markets it was very easy for investors and speculators to trade stocks. Initially dividend given by the companies was also high and this was another reason why long term investors wanted to invest money in the stock markets instead of investing it elsewhere. With everyone investing in the stock market investment in other sectors was decreasing and this was the start of a problem. Prices of stocks were increasing put not the production capacity of the companies. Production base was not increasing with the same pace so the stocks were severely overpriced. Investors were bidding the prices of scrip up but this was not representative of the performance of the company. When investors realized this they started to pull their money out of the stock market and as a result the stock market crashed. People lost a huge amount of money as a result and in turn their consumption decreased. The decrease in demand affected the profits of the companies so they started to lay off employees which in turn further decreased the demand. In this way a vicious cycle started and unemployment reached new heights (in some countries more than 33% decrease in employment was seen). This is how stock market crash started an economic recession that led to the great depression. Increase in Import Tariffs The demand was decreasing rapidly so governments wanted to protect the domestic companies. As a result import tariffs were increased. This step was taken by governments to counter the effects of depression but it further worsened the economic health of the countries. International trade shrank rapidly and this caused great problems for economies all over the world. International trade was very beneficial for the economy of many countries. It was a source of revenue and also increased the employment opportunities. By restricting international trade governments dug their own grave. They thought that it will protect their domestic industries but instead it was the means through which
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(“The Great Depression: Causes Essay Example | Topics and Well Written Essays - 1500 words”, n.d.)
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(The Great Depression: Causes Essay Example | Topics and Well Written Essays - 1500 Words)
“The Great Depression: Causes Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.org/macro-microeconomics/1415967-the-great-depression-causes.
It began in 1929 and stayed till late 1930s. The United States is one of those countries that were badly affected by this severe economic turmoil. This essay points out the main causes of the great depression along with its impact on the American society.
In this context, an economic crisis is defined as a period that is characterized with declining prices and output by more than 10 percent. The rate of unemployment also seems to increase during the period of economic depression. Based on these notions, in an old joke it has been stated that “a recession is when your neighbor loses his or her job; a depression is when you lose your job”1.
The news of the free falling value of stock spread across globally, setting off events that culminated in economic failure worldwide. The Great Depression occurred the decade prior to the World War II. It also occurred one decade after the culmination of the First World War.
The great depression has always been linked to the infamous calamitous crumple of New York stock market prices in 1929, a trend that continued steadily three years on.1 By the year 1932, stock market prices in the New York Stock exchange had declined to a meager 20% of their previous value in 1929.
The measure of trend of these periodic fluctuations is measured in terms of the levels of employment and production. When the measure indicates a down trend, then it is referred to as recession. This downward trend causes a decline in the spending of households.
Although it had its origin in the United States of America, it spread to the other parts of the globe. It began in the month of September 1929 in the US, after a devastating fall in the stock market prices. In the first six months of 1930, government and businesses spent more than they had in the previous six months.
Economic historians attribute the 1929 sudden and total collapse of the stock market as the primary cause of the great depression. Nevertheless, it resulted from several causes, and indeed, some economists argue that the stock market collapse was merely a symptom rather than a cause.
During the decade long economic depression, many people lost their businesses, jobs, homes, savings and, in many cases, hope. The positive and negative effects of government programs and policies put in place during this period in order to try to solve the economic meltdown
Women became full of life and started drinking, wearing short skirts and worse of all, smoking same to men (Freedman 61). Many average American bought automobiles accosted by household appliances on credit. In as much as many businesses grew by 65% from