explain
the impact of the economic
Depression
20.C
Answers
Answer:
Economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle. Economic depressions are characterized by their length, by abnormally large increases in unemployment, falls in the availability of credit (often due to some form of banking or financial crisis), shrinking output as buyers dry up and suppliers cut back on production and investment, more bankruptcies including sovereign debt defaults, significantly reduced amounts of trade and commerce (especially international trade), as well as highly volatile relative currency value fluctuations (often due to currency devaluations). Price deflation, financial crises, stock market crash, and bank failures are also common elements of a depression that do not normally occur during a recession.
Key Points
- The Great Depression was a global economic depression, the worst by far in the 20th century.
- It began in October 1929 after a decade of massive spending and increased production throughout much of the world after the end of World War I. The American stock market crashed on October 29, which became known as ” Black Tuesday.”
- The market lost over $30 billion in two days.
- When stocks plummeted on Black Tuesday, the world noticed immediately, creating a ripple effect on the global economy.
- The gold standard was the primary transmission mechanism of the Great Depression, driving down the currency of even nations with no banking crisis.
- The sooner nations got off the gold standard, the sooner they recovered from the depression.
- In many countries, the negative effects of the Great Depression lasted until the beginning of World War II.
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