The Great Depression, causes and effects.

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The Great Depression (1929-39) was the deepest and longest-lasting economic downturn in the history of the Western industrialized world” (The Great 2012).  The great depression is said to have begun after the First World War, It was a time of hardship and uncertainty. Although the great depression began in the United States it spread throughout the globe and affected almost every country. It brought about drastic declines in output, severe unemployment, and serious deflation.

                    Many countries such as Britain, Germany and France came out of the war with large debts to pay, this was due to the fact that they had been borrowing from The United States of America, after its entrance into financial crisis the rest of the countries depending on its financing would inevitably enter down turn and face similar crisis. World War 1 also left many industrialized countries weak and in large debts, they needed to finance the rebuilding of their economies and industries that were damaged during the war, this made it harder for them to recover.

There are a number of explanations to as what brought about the great depression in 1929. These are structural and monetary weaknesses as well as a number of specific events that enhanced the effects from one country to another and eventually to all major industrialized countries.

What Caused the great depression?

The depression was also said to have partially started with the crash of the stock market in the United States on October 29 1929, this was known as the Black Tuesday. This was said to be a major cause for the great depression and within just two months of the stock market crash stock holders had lost nearly $40 billion dollars.(The Great Depression- top5 causes of the great depression). As a few firms posted their results stock prices fell, this triggered panic as stock holders tried to sell their shares speculating a further drop in prices. Demand for these shares fell due to the excess supply further forcing prices down. Many banks and financial institutes had invested their clients’ money heavily in the stock market, with big losses many banks were forced to declare bankruptcy close down. This further triggered people to rush into withdrawing their savings fearing the bank will close down and they will lose their money, those who took time in doing so lost their money and faced bankruptcy. Throughout the 1930’a over 9000 banks failed (The Great Depression- top5 causes of the great depression), most of the banks had uninsured deposits which lead to people losing their money without compensation. Surviving banks thereafter became less willing to give out new loans and credit thus reducing the expenditure in the economy. Businesses were also affected by this, they had lost money in the stock market as well as in the banks, this lead to many businesses being closed down and declaring bankruptcy. “industrial production in the United States declined 47 percent and real  (GDP) fell 30 percent”( ) Those businesses that survived were heavily affected too, with unemployment increasing demand for their goods started falling and in return they had to cut back production and lay off workers or reduced wages thus further increasing unemployment and reducing aggregate demand in the economy as a whole.

During the 1930’s farmers experienced the dust bowl, this was caused by a drought and extensive farming over the years, the storms that came blew away and destroyed their crops leaving farmers without produce to sell or feed their family. The effect on smaller farmers was more severe because they had taken loans from financial institutes to purchase the land and depended on the harvest to start paying of the loans. With no produce to sell and pay loans the financial institutes were forced to take over the land and close down the farms leaving farmers unemployed and in many cases homeless. It was said that around 300,000 to 400,000 farmers migrated from Oklahoma and surrounding states, west to California. In the 1930’s people were hesitant to migration, they preferred to stay around areas and people they knew and family. This tells us the severity of the storms. Increased unemployment meant a further decrease in expenditure in the economy and thus leading to a loss in aggregate demand.( )

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The First World War and the great depression have a positive relationship. The effects of the war were the beginning of the great depression. America joined the World War 1 later on during the war, they not only spent less recourses fighting but came out of the war still holding the financial capabilities to help finance rebuilding of the countries affected by the war. America gave out loans to countries such as France and Britain to rebuild the country and Germany was tied down into paying large war adjustments which put them on a step backwards. American banks were willing ...

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