GREAT RECESSION/GREAT DEPRESSION - Essay Example

When handling a recession, one can trace the output to a reduction in purchases of durable goods, machines, and the necessary business equipment. The great depression was a global economic collapse that took place in around 1929 and lasted for nearly a decade, coming to an end in 1939 (Duignan 1). As reported by Duigan, it was the greatest and most serious economic downturn that the industrialised western world had ever experienced (1). It shook the stability of economic institutions and macroeconomic policy.

Its origin was in the United States of America and it was also the nation that was most severely hit. The harshness of the depression had significant variation across the countries; it was severe in America and Europe, whereas it was less harsh in some countries in Asia, such as Japan, as well as in Latin America (Duignan 1). The gold standard which was a link between many countries in terms of fixed currency exchange rates was the key player in transmitting the depression across many countries.

It was the abandonment of this gold standard and the resulting monetary growth that stimulated the great depression. Duigan says that “the economic impact of the great depression was enormous, including extreme human suffering and profound changes in economic policy” (2). . sset and commodity prices, dramatic drops in demand and credit, and disruption of trade” (23); these resulted in great poverty and unemployment amongst many youth. Many have given a comparison between the current global crisis and the great depression that occurred in the 1930s.

As reported by Dejuan, Febrero and Marcuzzo, this depression had caused a drop in GDP and the difference between the then crises with the current one is that as of then, there was no provision of social safety nets (101). Table showing the change in economic indicators between 1929 and 1932, as cited in Muldaji 3. Though many countries have yet to face a depression similar to the one experienced during the 1930s, America has already tested yet another depression during the reign of President George W. Bush. It has been classified as a great depression since it lasted for more than six months.

It took place in 2008 extending to the period of President Obama’s administration (Canterbery xv). The recurrence of an economic depression is evidence that most counties are not yet safe and have not put up enough measures to prevent future occurrences of such downturns. As proven by Canterbery, unemployment, which is one of the causes of economic depression, is still a headache to Obama’s administration, and voters from either sides (republicans and democrats) have called for increase in employment without the increase of taxes (1). 2. Theories of Depression There are several theories associated with economic depression.

These theories are classified into two main areas; the first is the orthodox classical economics, which involves monetarist neoclassical theory, as well as the Austrian economics (Muljadi 23). This theory majorly deals with the distribution of money by the central banking systems