Question

explain the Great Depression in 1929 in USA

Answer 1

The Great Depression was a severe economic crisis that started in the year 1929. It originated in the United States of America with the crash of the stock market and gradually spread to other countries of the world. The main cause behind this crisis was the fall in aggregate demand due to under consumption and over investment. Due to under consumption and over investment the stock of finished goods started piling up, which resulted in low price level and consequently the low profit level. The money in the economy was converted into unsold stock of finished goods that lead to an acute fall in employment and hence income level fell drastically. The demand for goods in the economy was so low that the production was lowered leading to the unemployment. In USA, the rate of unemployment increased from 3% to 25%.

The Great depression has its own implications and importance in economics, as it leads to the failure of the classical approach of economics. Those who believed in the market forces of demand and supply, paved the way for emergence of the Keynesian approach. It was this incident that provided the economists with sufficient evidence to recognise macroeconomics as a separate branch of economics.

The cause and effect relationship of the Great Depression can be summed up in this flow chart

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

Answer 2

Answer:

• German investments and industrial recovery were totally dependent on short-term loans, largely from the USA
• This support was withdrawn when the Wall Street Exchange crashed in 1929.
• Fearing a fall in prices, people made frantic efforts to sell their shares. On one single day, 24 October, 13 million shares were sold.
• This was the start of the Great Economic Depression. Over the next three years, between 1929 and 1932, the national income of the USA fell by half.
• The German economy was worst hit by the economic crisis. By 1932, industrial production was reduced to 40% of the 1929 level.
• Workers lost their jobs or were paid reduced wages. The number of unemployed touched an unprecedented 6 million.
• On the streets of Germany you could see men with placards around their necks saying, " Willing to do any work".
• This crisis created deep anxieties and fears in the people.