The Great Depression is referred to as the greatest and also the longest economic downturn or recession in modern history. It started in the USA. After that, it had a rippling effect on the economies of the world.
It is said that the Great Depression started with the USA stock market crash in October 1929. To be precise, the stock market crashed on October 24, 1929, which is known in American history as the Black Thursday.
The impact of the stock market crash resulted in panic among the investors in Wall Street, wiping out almost $30 billion from the stock market. This resulted in the crashing of other major financial institutions such as banks.
It is said that around 5000 banks went bankrupt as an aftermath of the stock market crash in 1929. One of such banks was Boden-Kredit Anstalt, which was Austria’s most important bank.
There was a significant drop in consumer spending and investments that caused a major decline in industrial output and laid off employees from companies.
By 1933, the unemployment rate had risen to 25%, and the GDP of the USA contracted to half of its value due to deflation. Around 15 million jobs were lost in the economy.
The other significant impact of the Great Depression was that many farmers lost their properties due to drought and over-cultivation in Midwest America. This was termed as the Dust Bowl, which destroyed agricultural lands.
Causes of Great Depression
The Great Depression is attributed to the combination of the following factors:
- Tight monetary policies adopted by the Central Bank of America
- Stock market crash of 1929
- The failure of banks, which was the impact of the stock market crash as more people withdrew their savings from the banks leading to closure.
- Reduction in purchases due to diminished savings
- The passing of Smoot-Hawley Tariff or the Tariff Act of 1930, imposed high taxes on imported goods. As a retaliation for the same, trade partners imposed high tariffs on goods made in the USA, which resulted in a decline in the world trade by around two-third between the periods of 1929-34.
- Environmental degradation by drought and farming practices did not help in soil preservation and resulted in large areas of non-agricultural land. This was known as the Dust Bowl. This was coupled with dust storms that destroyed crops and livestock.
How did the Great Depression End?
The end of the Great Depression can be attributed to many factors. The most prominent among them are:
The New Deal
The New Deal refers to the policies that were put into effect by Franklin Roosevelt. At that time he was the newly elected President of the United States. He orchestrated policies like the Emergency Bank Act, Emergency Farm Mortgage Act, and Agricultural Adjustment Act.
These policies were implemented with the aim of stabilising the economy, and providing security to the farmers and their crops.
All these policies and other new policies paved the way to inject stability in the economy.
The World War II
Some economists suggest that the start of World War II was one of the factors that ended the Great Depression. Due to the joining of the USA in the war, the government spending shot up significantly, leading to more employment.
This coupled with sharp reduction in the areas of taxes and regulation during the end of World War II and contributed significantly to the end of the Great Depression.
This completes the topic on the Great Depression, which was one of the longest periods of recession in world history. To learn more about such interesting concepts on Economics, stay tuned to our website.
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FAQs
The Great Depression was an economic crisis that began with the stock market crash of 1929 and lasted for nearly a decade. The causes of the Great Depression included the stock market crash of 1929, bank failures, and a drought that lasted throughout the 1930s.
What was the cause of the Great Depression answer? ›
Among the suggested causes of the Great Depression are: the stock market crash of 1929; the collapse of world trade due to the Smoot-Hawley Tariff; government policies; bank failures and panics; and the collapse of the money supply.
What is the Great Depression Short answer? ›
What was the Great Depression? The "Great Depression " was a severe, world -wide economic disintegration symbolized in the United States by the stock market crash on "Black Thursday", October 24, 1929 . The causes of the Great Depression were many and varied, but the impact was visible across the country.
What was the Great Depression simple definition quizlet? ›
Great Depression. The economic crisis and period of low business activity in the U.S. and other countries, roughly beginning with the stock-market crash in October, 1929, and continuing through most of the 1930s.
What was the Great Depression and its main effects briefly describe? ›
Solution:The Great Depression began around 1929 and lasted till the mid-1930s. During this period: There were steep declines in production, employment, incomes and trade. Agricultural regions and communities were worst affected due to the fall of agricultural prices and ruin of urban centres.
What factors caused the Great Depression to spread around the world? ›
The key factor in turning national economic difficulties into worldwide Depression seems to have been a lack of international coordination as most governments and financial institutions turned inwards.
What caused the Great recession? ›
In 2007, losses on mortgage-related financial assets began to cause strains in global financial markets, and in December 2007 the US economy entered a recession.
What is the best definition of the Great Depression? ›
Great Depression, worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world, sparking fundamental changes in economic institutions, macroeconomic policy, and economic theory.
What was the Great Depression and what started it? ›
The Depression was the longest and deepest downturn in the history of the United States and the modern industrial economy. The Great Depression began in August 1929, when the economic expansion of the Roaring Twenties came to an end. A series of financial crises punctuated the contraction.
What was the Great Depression short term? ›
Short-term causes included a decline in consumer spending, a decrease in international trade, and a contraction in industrial production. In the long term, the stock market crash of 1929 was a major trigger for the Great Depression.
As stocks continued to fall during the early 1930s, businesses failed, and unemployment rose dramatically. By 1932, one of every four workers was unemployed. Banks failed and life savings were lost, leaving many Americans destitute. With no job and no savings, thousands of Americans lost their homes.
What was one major effect of the Great Depression quizlet? ›
The Great Depression affected the daily lives of average Americans by causing them to be unemployed. People who had homes or apartments became homeless because they had no money to pay rent. Families fell apart when the husbands would leave to go search for jobs. Many suffered depression and committed suicide.
Who got rich during the Great Depression? ›
Not everyone, however, lost money during the worst economic downturn in American history. Business titans such as William Boeing and Walter Chrysler actually grew their fortunes during the Great Depression.
When did the Great Depression start? ›
The Great Depression began in August 1929, when the economic expansion of the Roaring Twenties came to an end. A series of financial crises punctuated the contraction.
What are the six causes of the Great Depression quizlet? ›
Q-Chat
- Stock Market Crash.
- Hawley Smoot Tariff.
- Dust Bowl.
- Bank Failures.
- Buying on credit in the 20s.
- Reduction in purchasing.
- Gap between rich & poor.
What Were the Causes of the 1929 Stock Market Crash? There were many causes of the 1929 stock market crash, some of which included overinflated shares, growing bank loans, agricultural overproduction, panic selling, stocks purchased on margin, higher interest rates, and a negative media industry.
How did WW1 cause the Great Depression? ›
World War I's legacy of debt, protectionism and crippling reparations set the stage for a global economic disaster. Nearly two decades after leaving the White House, Herbert Hoover knew precisely where to place the blame for the economic calamity that befell his presidency—and it wasn't with him.
