The causes of the depression

Essay by mohit007University, Bachelor'sA, November 2004

download word file, 5 pages 3.9 1 reviews

During the 1930's there was a world wide economic crisis known as the great depression, which effected many countries including Europe and America. The great depression had managed to affect a vast amount of different industries such as agriculture and finance bringing them down to an almost standstill causing unemployment rates to increase and consumer demand to decrease.

The causes of the great depression are debateable due to different economists theory on government policies and macroeconomics. However, in this essay the causes of the great depression and how it had escalated to a world - wide scale problem will be discussed.

In the view of Keynes, a depression is a case of "severe recession, where people hoard money no matter how mush central banks try to increase money supply". To cure the depression, Keynes had believed that the government should start to do what consumers were not doing, like increase the spending.

He had referred to this as "priming the pump".

In 1929, the Federal Reserve indexes of industrial activity and factory production were at their highest. This meant that firms and factories had a lot of confidence in the economy and started to increase production. However the industries had failed to recognise that the economy had weakened but still kept producing. The weakening of the economy was due to supply outweighing the consumer demand and businesses misjudging the consumer demand and inventories. This had resulted in the reduction of buying and the cut back of production. This can then cause redundancies in employment, which can lead to the lack of demand due to low incomes. Therefore it had all turned into a vicious cycle.

Other signs of the industries within the USA looking economically unhealthy included the slow decrease in freight carloads, industrial production and wholesale prices. This all...