The Great Depression

Name: SYED Ahmed Ullah SHAH.

Study: MACRO ECONOMICS. Assignment No:1st Date: 12 March 2012 Teacher:

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The Great Depression

History: The Great Depression was a severe worldwide economic depression before World War II. The timing of the Great Depression varied across nations, but in most countries it started in 1929 and lasted until the late 1930s or early 1940s. It was the longest, most widespread, and deepest depression of the 20 th century. The Great Depression began with the Wall Street Crash of October, 1929 and rapidly spread worldwide. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement. Although its causes are still uncertain and controversial, the net effect was a sudden and general loss of confidence in the economic future. Industries that suffered the most included construction, agriculture as dust-bowl conditions persisted in the agricultural heartland, shipping, mining, and logging as well as durable goods like automobiles and appliances that could be postponed. The economy reached bottom in the winter of 193233; then came four years of very rapid growth until 1937, when the Recession of 1937 brought back 1934 levels of unemployment. The Great Depression had devastating effects in virtually every country, rich and poor. Personal income, tax revenue, profits and prices dropped, while international trade plunged by more than 50%. Unemployment in the U.S. rose to 25%, and in some countries rose as high as 33%. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by approximately 60%. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as cash cropping, mining and logging suffered the most.

Causing Behind The Great Depression: 1: Stock Market Crash of 1929: Many believe that the stock market crash that occurred on Black Tuesday, October 29, 1929 is one and the same with the Great Depression. In fact, it was one of the major causes that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion dollars. 2: Bank Failures: Throughout the 1930s, over 9,000 banks failed. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans. 3: Reduction in Purchasing Power: With the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. The unemployment rate also rose above 25% which meant even less spending to help alleviate the economic situation.

Recovery From The Great Depression: In most countries of the world, recovery from the Great Depression began in 1933. In the U.S., recovery began in early 1933, but the U.S. did not return to 1929 GNP for over a decade and still had an unemployment rate of about 15% in 1940, come down from the high of 25% in 1933. The common view among mainstream economists is that Roosevelt's New Deal policies either caused or accelerated the recovery, although his policies were never aggressive enough to bring the economy completely out of recession. One contributing policy that reversed reflation was the Banking Act of 1935, which effectively raised reserve requirements, causing a monetary contraction that helped to the recovery. GDP returned to its upward slope in 1938.

Effects Of The Great Depression: Effects of depression in the U.S. 13 million people became unemployed. In 1932, 34 million people belonged to families with no regular full-time wage earner. Industrial production fell by nearly 45% between 1929 and 1932. Homebuilding dropped by 80% between the years 1929 and 1932. From 1929 to 1932, about 5,000 banks went out of business. Between 1929 and 1933, U.S. GDP fell around 30%, the stock market lost almost 90% of its value. In 1933, 25% of all workers and 37% of all nonfarm workers were unemployed. Over one million families lost their farms between 1930 and 1934. Nine million savings accounts had been wiped out between 1930 and 1933. There were two million homeless people migrating around the country. Many people became ill with diseases such as tuberculosis. References:
http://en.wikipedia.org/wiki/Great_Depression_in_the_United_States http://en.wikipedia.org/wiki/Great_Depression http://video.about.com/americanhistory/Causes-of-the-Great-Depression.htm