GREAT DEPRESSION

Q2). Briefly describe the magnitude of the “great depression” using economic data?

Ans ) Great Depression, which started in 1929 and soon spread to other advanced countries.
The GDP and the unemployment rate of the countries started dropping at a very great pace. It
soon affected their volume of trade also and it fell from 100% (base year) in 1929 to 76.5% in
1932.
YEAR REAL GDP PRICE UNEMPLOYMENT TRADE
LEVEL VOLUME
1929 100 100 7.2 100
1930 95.2 90.8 14.1 94.8
1931 89.2 79.9 22.8 89.5
1932 83.3 73.1 31.4 76.5
1933 84.3 71.7 29.8 78.4
1934 89.0 75.3 23.9 79.6

Source: Oxford Review of Economic Policy, Volume 26, Number 3, 2010, pp. 285–317

The impact of the Great recession lasted for many years. But after 1933 the condition started
to improve. The production of various countries also get impacted from it. The data are as
follows:

COUNTRIES FELL IN PRODUCTION

UNITED STATES 46.8%
GERMANY 41.8%
POLAND 46.6%
FRANCE 31.3%
UNITED KINGDOM 16.2%
Source: https://www.britannica.com/event/Great-Depression

Q3). Which economic policies ultimately led to the recovery?

Ans). Many people have different opinion about different economic policies that has been
used to recover from the Great Depression. So we can’t give the credit to one policy. Every
policy played an important role but the policy which the most was the rehabilitation of the
banking system. This helps the banks to abstain them from failures and also eased the crunch
of credit. The first act passed by Roosevelt in 1933 was the Emergency Banking Act and then
subsequent act came in to picture. And this whole thing bring in to picture the Reconstruction
finance Corporation(RFC). RFC provided the substantial capital and also defined the criteria
for the bank to get the market discipline in risk taking.

Removing the gold standard was also the reason for the recovery. Removing gold helps the
countries with payment deficits and get away from the pressure of fiscal policy.

Romer (1992) said that the recovery from the great depression happened due to the changes
in monetary policy. This helped in growth of from the monetary base and M1 after 1933. The
growth of M1 by 10% helped in the growth of country GDP. The growth observed in the
GDP was 25%.

Fishback said the New Deal also played a small part in the recovery. This deal was financed
by the increase in tax. This directly affected the fiscal stimulus and helped in recovery.
Q4). What lessons can be gleaned from the “great depression”?

Ans). The lessons learned from the great depression are as follows:
1). Monetary Policy played a very important role in a country well being. It has be to
well planned and implemented. If not properly implemented and tightened at wrong time this
could lead to the Economy depression.
2). Banks must be regulated really well. Poor regulation can lead to the problem of the
stock market. And if not mended at that moment the subsequent failures can lead to the Great
depression.
3). Dropping of demand can stagnate the growth of the country and then lead to the
recession. Therefore government must maintain the flow of money in the system to properly
run the supply demand cycle.
4). Money invested by the government in the market should produce goods like
infrastructure, employment etc. Otherwise, simply putting money in the market can push the
country in to inflation and can also break the demand supply cycle.

Q5). What according to you are chances of another “great depression” affecting the world
economic order?

Ans). According to me, the chances of another great depression is very minimal. Reason
behind that is government are constantly looking in to the market how they behave. If the
market shows sign of the downturn then immediately starts taking action. Their close
vigilance on the employment rate, stock market volatility, oil prices, monetary policies, and
bank near failures will not let the economic depression to happen again.