Question

Discuss the reasons for the Great depression of 1929 .

Answer 1

Answer:

Low demand → overinvestment → low level of employment → low level of output → low income → low demand.

Explanation:

• The Great Depression was a severe economic depression that began in 1929 and lasted until 1933. It began with the stock market crisis in the United States of America and gradually extended to other countries around the world. The major cause of the crisis was a drop in aggregate demand as a result of underconsumption and over-investment.
• Due to insufficient consumption and excessive investment, finished goods inventories began to accumulate, resulting in a low price level and, as a result, a poor profit level. Money in the economy was turned into unsold finished items, resulting in a sharp drop in employment and, as a result, a sharp drop in revenue. Because the economy's demand for goods was so low, production was reduced, resulting in unemployment. The unemployment rate in the United States has risen from 3% to 25%.
• The Great Depression has its own economic ramifications and significance, as it leads to the breakdown of the traditional economic strategy. Those who believed in the market dynamics of supply and demand created the stage for the Keynesian approach to emerge. It was because of this episode that economists were able to recognise macroeconomics as a distinct area of economics.