Question

Look into the period of the Great Depression and summarize the causes and events that led the economy to the Great Depression. Are there similarities with the economy then and the economy now? Do you feel that another Great Depression is ever possible?

Answer 1

Causes of Great Depression-

1. Stock Market:

There was downturn in the stock market of United States in the early 20^th century. Before the downturn, the stock market expanded greatly, so people started investing in huge amounts. As investments increased by way too much, it got crashed and the stock prices fell around 35%.

2. Banking crisis:

There was the reduction in money supply in the economy. The United States began to experience the banking crisis due to which people started withdrawing their money out of the banks with the fear of the banks getting insolent. Thus led to the decrease in investments and lending by the banks.

3. Fall in trade-

When in the phase of expansion in United States, the lending to other countries decreased. There was a fall in trade also which led to the fall in foreign exchange and the foreign direct investment (FDI).

These factors along with many others led to the great depression of 1920-1930s in United States.

Economies nowadays are quite different from the ones at the time of Great Depression. Although 2008 seemed to be as much like the great Depression. At the time, there was no boom in the economy and the monetary contractions were also present.

Economists believe that if the stability in the economy that is currently there is not maintained, then there are chances of facing the great depression all over again. However, if that happens, many of the people will end up losing their jobs and this will be a great downturn or recession for the economy. Stock market can be a big cause to this. The kind of volatility it contains can become a bane for all of us.