OKANG GEORGE ITA
MACROECONOMICS
‘’THE THREE MOST IMPORTANT PROBLEMS TO REMEMBER ABOUT THE GREAT DEPRESSION”
May 1, 2018
The Great depression was a severe worldwide economic depression that took place mostly during the 1930sbeginning in the United States. The timing of this depression varied across nations. In most countries it started in 1929 and lasted until the late-1930s. It was the longest, deepest, and most widespread depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline. The Great Depression started in the United States after a major fall in stock prices that began around September 4, 1929, and became worldwide news with the stock market crash of October 29, 1929 (known as Black Tuesday). Between 1929 and 1932 worldwide gross domestic product fell by an estimated 15%. Some economies started to recover by the mid-1930s. However, in many countries, the negative effects of the Great Depression lasted until the beginning of World War II. The depression had major devastating effects in countries both rich and poor. Personal income, tax revenue, profits and prices dropped while international trade plunged by more than 50%.Unemployment in the U.S rose to about 25% and in some countries were as high as 33%.
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Money supply decreased considerably between black Tuesday and bank holiday in 1933 when there were massive bank runs across the United States.
U.S. industrial production (1928–39)
The two classical competing theories of the Great Depression are the Keynesian (demand-driven) and the monetarist explanation. There are also various heterodox theories that downplay or reject the explanations of the Keynesians and monetarists. The consensus among demand-driven theories is that a large-scale loss of confidence led to a sudden reduction in consumption and investment spending. Once panic and deflation set in, many people believed they could avoid further losses by keeping clear of the markets. Holding money became profitable as prices dropped lower and a given amount of money bought ever more goods, exacerbating the drop in demand. Monetarists believe that the Great Depression started as an ordinary recession, but the shrinking of the money supply greatly exacerbated the economic situation, causing a recession to descend into the Great Depression.
Economists and economic historians are almost evenly split as to whether the traditional monetary explanation that monetary forces were the primary cause of the Great Depression is right, or the traditional Keynesian explanation that a fall in autonomous spending, particularly investment, is the primary explanation for the onset of the Great Depression. Today the controversy is of lesser importance since there is mainstream support for the debt deflation theory and the expectations hypothesis that building on the monetary explanation of Milton Friedman and Anna Schwartz add non-monetary explanations.
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