The Great Depression and Policy Responses

This assignment delves into the devastating effects of the Great Depression on the world economy. It examines the significant decline in global output, trade, and industrial production, highlighting the severity of the crisis. The document analyzes the primary cause of the depression as falling demand, leading to a negative economic cycle. Furthermore, it explores various policy measures adopted by governments and central banks to stimulate demand and initiate recovery, emphasizing the importance of fiscal and monetary policies in mitigating the impact of the Depression.

Running head: ANALYSIS OF GREAT DEPRESSION
ANALYSIS OF GREAT DEPRESSION
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1ANALYSIS OF GREAT DEPRESSION
TABLE OF CONTENT
INTRODUCTION:..........................................................................................................................2
DISCUSSION:.................................................................................................................................2
TIME, PLACE & TYPE:.............................................................................................................2
CAUSES:.....................................................................................................................................3
OVERALL IMPACT:.................................................................................................................5
POLICY MEASURE:..................................................................................................................5
CONCLUSION................................................................................................................................6
REFERNECE..................................................................................................................................7

2ANALYSIS OF GREAT DEPRESSION
INTRODUCTION:
As the economy interprets, a downturn in economic activity is a position of the business
cycle that shows downward trend in all of its activity and slowly enters into recession. Longer
continuation of recession gives birth to great economic recession or depression.
In the history of the world economic crisis, the great depression marks out its huge
importance due to the impression it had enunciated. It was longest depression to sustain and had
even longer impact on the entire world affecting mostly developed nation of the world (Ayerbe
et al. 2012).
This report presents a brief summary of the facts regarding the great depression
discussing the causes, effects it had and the measures taken to deal with the impact emanating
from the recession.
DISCUSSION:
TIME, PLACE & TYPE:
The exact inception and duration of the depression is controversial but according to the
general record, the great depression started in the year 1929 and continued till 1939 and some
sources says it lasted until 1941 (Hansen 2015). The deepest and worldwide impact of the great
depression in the 20th century is one of the striking example of extent of economic decline in the
history of western industrialized world.
The inception of the depression lies in the stock market crash arising in United States of
America in October 1929. The stock prices faced a steep decline in its prices and generated the

3ANALYSIS OF GREAT DEPRESSION
crash of overall stock market that devastated the atmosphere in the Wall Street. This led to
withdrawal of the investments made on stocks from the and wiped out the existence of millions
of investors. The depression demanded back the loans made by US and this affected the
countries taking loan from it (Brunner 2012). Moreover, the crash led to halt in the business
affecting export, import that further hurt the economy of the trading countries. Canada, Australia
having higher impacts compared to China, France having nor or less impact.
CAUSES:
STOCK MARKET CRASH:
Leading cause behind great depression was the US stock market crash of 1929 that is
treated as the inception point of the widest crisis in the history of financial crises (Tindall and Shi
2016). The crash appeared in October had resulted into loss of faith and credibility from the
investors side which led to drawing back of their investment that led to demise of the stock
market completely.
FAILURE OF BANKS:
Another dreadful reason behind such severe economic collapse was the failure of bank.
As per data, over 9000 banks failed in its operation. The uninsured savings deposited with banks
hit consumers strongly reducing their wealth and affecting the consumer expenditure (Mian and
Sufi 2015). The banks who managed to survive fell victim of the uncertain economic condition
hence stopped credit provisions.

4ANALYSIS OF GREAT DEPRESSION
LOWER PURCHASING POWER
As a result of the bank failure and stock price fall, the overall economic activity in form
of consumption, investment expenditure fell due to lack in demand and production halted giving
birth to the recession. The crisis reduced wealth of the consumers that affected consumption
decision. The uncertain price and interest rate stemming from volatile and crashed stock market
hit the credibility of investors that led to fall I the investment drastically. This led to fall in the
national output, which further interprets, into huge unemployment reaching a level of 25% and
lower income of individual purchasing power.
American Economic Policy with Europe:
In the context of falling business, the American government imposed Smoot-Hawley
tariff in 1930 to provide protection to the American business organization (Stuckler et al. 2016) .
This increased the cost of trade as the importers had to pay greater import tax and consequent fall
in the import. This affected the economy of European and other foreign exporter to America
operated through worsening of world trade.
Drought Conditions:
Even though not direct cause of the depression yet the drought that broke out in
Mississippi Valley during 1930, led to failure in the tax payments of the debtor farmers. They
had to sell their lands for no profit and this affected the agricultural production as well as the
income level of the farmers leading to further cut in the consumption.

5ANALYSIS OF GREAT DEPRESSION
OVERALL IMPACT:
The post World War I, worldwide devastation American economy emerged as one of the
greatest creditor to the war trodden European countries. Germany was the greatly indebted to US
for the post war payments it had. The slump of the American economy had greater spillover
impact on the countries connected to it through credits or economic transaction. The investment
flow towards Europe stopped leading to collapse (Hoover 2013). The great recession had
interlinked impact on the economies of the world sourced from US share market fall. The event
chain wise brought down the output, income, employment over the years with no sign of
improvement. Since Britain and Germany was mostly indebted to US, unemployment in those
countries sharply reached to 25 percent f the total workforce. The impact of the depression is
reflected in the fact that the world gross domestic output fell by 15%.
The severe great depression evidently collapsed the volume of world trade. Increased
import tariff made imports costlier affecting world exporters. The industrial production of the
countries like Germany fell to 40%, France t29% and Britain to 14% in 1931 in contrast with
1929. This clearly depicts the world entering into global crisis making the depression more
painful. The negative impact of the depression lasted until 1941 affecting not only the economic
scenario but also the social, political stability all over the world.
POLICY MEASURE:
The greatest impact of the crisis was falling demand that further held back the production
and generated low incomes, which led to low demand made. The economy was in negative trap
and required a big push to get out of it. As perceived and analyzed by various economist by then,
increasing demand was the greatest motive to introduce or initiate recovery worldwide. This

6ANALYSIS OF GREAT DEPRESSION
required successful adoption of fiscal and monetary policy by the central banks and governments
of the countries all over the world. To increase demand income level had to rise and that was
possible only by producing more. In such situation, producing more required higher
investments and government expenditure to create employment (Berton 2012). Lowering
interest rate through monetary policies and lowering tax along with increasing spending of the
government was common policy adopted by countries wishing to recover the lethal effect of
depression.
CONCLUSION
The discussion enlightens us successfully about the dreadful impact the great depression
had on the economic, political as well as social condition of the world through almost 12 years.
The crisis is marked as one of the influential downturn that spilled its effect and cause die down
to entire world economy. Even though it took long time but the policy measures boosting the
demand side of the economy seemed helpful to initiate recovery in the economy.

7ANALYSIS OF GREAT DEPRESSION
REFERNECE
Ayerbe, L., Ayis, S., Wolfe, C.D. and Rudd, A.G., 2013. Natural history, predictors and
outcomes of depression after stroke: systematic review and meta-analysis. The British Journal of
Psychiatry, 202(1), pp.14-21
Berton, P., 2012. The Great Depression: 1929-1939. Anchor Canada.
Brunner, K. ed., 2012. The great depression revisited (Vol. 2). Springer Science & Business
Media.
Hansen, P.H., 2015. Hall of mirrors: the great depression, the great recession, and the uses—and
Misuses—of History. Business History Review, 89(3), pp.557-569.
Hoover, H., 2013. The Memoirs of Herbert Hoover-The Great Depression, 1929-1941. Read
Books Ltd.
Mian, A. and Sufi, A., 2015. House of debt: How they (and you) caused the Great Recession,
and how we can prevent it from happening again. University of Chicago Press.
Stuckler, D., Meissner, C., Fishback, P., Basu, S. and McKee, M., 2012. Banking crises and
mortality during the Great Depression: evidence from US urban populations, 1929–1937. J
Epidemiol Community Health, 66(5), pp.410-419.
Tindall, G.B. and Shi, D.E., 2016. America: A narrative history. WW Norton & Company.