Great Economic Recession Or Depression †Myassignmenthelp.Com

Question: Discuss About The Great Economic Recession Or Depression? Answer: Introduction: As the economy interprets, a downturn in economic activity is a position of the business cycle that shows downward trend in all of its activity and slowly enters into recession. Longer continuation of recession gives birth to great economic recession or depression. In the history of the world economic crisis, the great depression marks out its huge importance due to the impression it had enunciated. It was longest depression to sustain and had even longer impact on the entire world affecting mostly developed nation of the world (Ayerbe et al. 2012). This report presents a brief summary of the facts regarding the great depression discussing the causes, effects it had and the measures taken to deal with the impact emanating from the recession. Discussion: Time, Place Type: The exact inception and duration of the depression is controversial but accounting to the general record, the great depression started in the year 1929 and continued till 1939 and some sources says it lasted until 1941 (Hansen 2015). The deepest and worldwide impact of the great depression in the 20th century is one of the striking example of extent of economic decline in the history of western industrialized world. The inception of the depression lies in the stock market crash arising in United States of America in October 1929. The stock prices faced a steep decline in its prices and generated the crash of overall stock market that devastated the atmosphere in the Wall Street. This led to withdrawal of the investments made on stocks from the and wiped out the existence of millions of investors. The depression demanded back the loans made by US and this affected the countries taking loan from it (Brunner 2012). Moreover, the crash led to halt in the business affecting export, import that further hurt the economy of the trading countries. Canada, Australia having higher impacts compared to China, France having nor or less impact. Causes: Stock Market Crash: Leading cause behind great depression was the US stock market crash of 1929 that is treated as the inception point of the widest crisis in the history of financial crises (Tindall and Shi 2016). The crash appeared in October had resulted into loss of faith and credibility from the investors side which led to drawing back of their investment that led to demise of the stock market completely. Failure Of Banks: Another dreadful reason behind such severe economic collapse was the failure of bank. As per data, over 9000 banks failed in its operation. The uninsured savings deposited with banks hit consumers strongly reducing their wealth and affecting the consumer expenditure (Mian and Sufi 2015). The banks who managed to survive fell victim of the uncertain economic condition hence stopped credit provisions. Lower Purchasing Power As a result of the bank failure and stock price fall, the overall economic activity in form of consumption, investment expenditure fell due to lack in demand and production halted giving birth to the recession. The crisis reduced wealth of the consumers that affected consumption decision. The uncertain price and interest rate stemming from volatile and crashed stock market hit the credibility of investors that led to fall I the investment drastically. This led to fall in the national output, which further interprets, into huge unemployment reaching a level of 25% and lower income of individual purchasing power. American Economic Policy with Europe: In the context of falling business, the American government imposed Smoot-Hawley tariff in 1930 to provide protection to the American business organization (Stuckler et al. 2016) . This increased the cost of trade as the importers had to pay greater import tax and consequent fall in the import. This affected the economy of European and other foreign exporter to America operated through worsening of world trade. Drought Conditions: Even though not direct cause of the depression yet the drought that broke out in Mississippi Valley during 1930, led to failure in the tax payments of the debtor farmers. They had to sell their lands for no profit and this affected the agricultural production as well as the income level of the farmers leading to further cut in the consumption. Overall Impact: The post World War I, worldwide devastation American economy emerged as one of the greatest creditor to the war trodden European countries. Germany was the greatly indebted to US for the post war payments it had. The slump of the American economy had greater spillover impact on the countries connected to it through credits or economic transaction. The investment flow towards Europe stopped leading to collapse (Hoover 2013). The great recession had interlinked impact on the economies of the world sourced from US share market fall. The event chain wise brought down the output, income, employment over the years with no sign of improvement. Since Britain and Germany was mostly indebted to US, unemployment in those countries sharply reached to 25 percent f the total workforce. The impact of the depression is reflected in the fact that the world gross domestic output fell by 15%. The severe great depression evidently collapsed the volume of world trade. Increased import tariff made imports costlier affecting world exporters. The industrial production of the countries like Germany fell to 40%, France t29% and Britain to 14% in 1931 in contrast with 1929. This clearly depicts the world entering into global crisis making the depression more painful. The negative impact of the depression lasted until 1941 affecting not only the economic scenario but also the social, political stability all over the world. Policy Measure: The greatest impact of the crisis was falling demand that further held back the production and generated low incomes, which led to low demand made. The economy was in negative trap and required a big push to get out of it. As perceived and analyzed by various economist by then, increasing demand was the greatest motive to introduce or initiate recovery worldwide. This required successful adoption of fiscal and monetary policy by the central banks and governments of the countries all over the world. To increase demand income level had to rise and that was possible only by producing more. In such situation, producing more required higher investments and government expenditure to create employment (Berton 2012). Lowering interest rate through monetary policies and lowering tax along with increasing spending of the government was common policy adopted by countries wishing to recover the lethal effect of depression. Conclusion The discussion enlightens us successfully about the dreadful impact the great depression had on the economic, political as well as social condition of the world through almost 12 years. The crisis is marked as one of the influential downturn that spilled its effect and cause die down to entire world economy. Even though it took long time but the policy measures boosting the demand side of the economy seemed helpful to initiate recovery in the economy. Refernece Ayerbe, L., Ayis, S., Wolfe, C.D. and Rudd, A.G., 2013. Natural history, predictors and outcomes of depression after stroke: systematic review and meta-analysis.The British Journal of Psychiatry,202(1), pp.14-21 Berton, P., 2012.The Great Depression: 1929-1939. Anchor Canada. Brunner, K. ed., 2012.The great depression revisited(Vol. 2). Springer Science Business Media. Hansen, P.H., 2015. Hall of mirrors: the great depression, the great recession, and the usesand Misusesof History.Business History Review,89(3), pp.557-569. Hoover, H., 2013.The Memoirs of Herbert Hoover-The Great Depression, 1929-1941. Read Books Ltd. Mian, A. and Sufi, A., 2015.House of debt: How they (and you) caused the Great Recession, and how we can prevent it from happening again. University of Chicago Press. Stuckler, D., Meissner, C., Fishback, P., Basu, S. and McKee, M., 2012. Banking crises and mortality during the Great Depression: evidence from US urban populations, 19291937.J Epidemiol Community Healthcare,66(5), pp.410-419. Tindall, G.B. and Shi, D.E., 2016.America: A narrative history. WW Norton Company.