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The Great Depression

Great Depression was one of the most severe economic situation the world had ever seen. It all started during late 1929 and lasted till 1939. Although, the origin of depression was United Sattes but with US Economy being highly correlated with global economy, the ill efffects were seen in the whole world with high unemployment, low production and deflation. Overall it was the most severe depression ever faced by western industrialized world. Stock Market Crashes, Bank Failures and a lot more, left the governments ineffective and this lead the global economy to what we call today- ‘’Great Depression’’.(Rockoff). As for the cause and what lead to Great Depression, the issue is still in debate among eminent economists, but the crux provides evidence that the worst ever depression ever expereinced by Global Economy stemed from multiple causes which are as follows:

Stock Market Crash:

Post the era of World War I, of all the countries it was only USA which was in win win situation. Both during and post war times, US economy has seen a boom in their income with massive trade between Europe and Germany. As a result, the 1920’s turned out to be a prosperous decade for Americans and this led to birth of mass investments in stock markets. With increased income after the war, a lot of investors purchased stocks on margins and with US Stock Exchange going manifold from 1921 to 1929, investors earned hefty returns during this time epriod which created a stock market bubble in USA. However, in order to stop increasing prices of Stock, the Federal Reserve raised the interest rate sof loanabel funds which depressed the interest sensitive spending in many industries and as a result a record fall in stocks of these companies were seen and ultimately the stock bubble was finally burst. The fall was so dramatic that stock prices were even below the margins which investors had deposited with their brokers. As a reuslt, not only investor but even the brokerage firms went insolvent. Withing 2 days of 15-16 th October, Dow Jones fell by 33% and the event was referred to Great Crash of 1929. Thus with investors going insolvent, a major shock was seen in American aggregate demand. Consumer Purchase of durable goods and business investment fell sharply after the stock market crash. As a result, businesses experienced stock piling of their inventories and real output fell rapidly in 1929 and throughout 1930 in United States.

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