Assignment

Name: Ali Hassan

Roll no. 25

Class: MBA 2nd semester

Subject: Principle of Macroeconomics

Submitted by: Sir Mudassar Bilal

Great Depression
History: The Great Depression was a severe worldwide economic depression that took place mostly
during the 1930s, beginning in the United States. The timing of the Great Depression varied across the
world; 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.

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 (GDP) fell by
an estimated 15%. By comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during
the Great depression. Some economies started to recover by the mid-1930s. Unemployment in the
U.S. rose to 23% and in some countries rose as high as 33%.

Construction was virtually halted in many countries. Farming communities and rural areas suffered as
crop prices fell by about 60%. Facing plummeting demand with few alternative sources of jobs, areas
dependent on primary sector industries such as mining and logging suffered the most.

Causes: There were many different Causes of the Great Depression which was sparked by the
1929 Wall Street Crash when $10-$15 billion was lost, due to plummeting prices on the stock
market, in just one day. There were many causes of the Great Depression that included the
following:

 Overconfidence: For Middle Class Americans the Roaring Twenties was a time of great

prosperity. Industries boomed which led to the 1920s Economic Boom. It was an era of
modernism, excitement, new ideas and it was the age of the automobile.
  Consumerism: The irrational exuberance of the Roaring Twenties led to the rise
of Consumerism in 1920's America and people were encouraged to acquire new product
 in ever-increasing amounts through mass advertising in the newspapers and via the
radio.
 Easy Credit: Once "thrifty and prudent" Americans threw caution to the wind, careless
of rising debt, and purchased consumer items on easy credit. Stock Brokers promoted
the idea of "Buying on Margin" - encouraging enthusiastic investors to buy stocks with
money loaned from the stock broker. Nearly 4 million Americans engaged in heavy
speculation, gambling on the Stock Market.
 Overproduction: The demand for goods, massive increases in sales, modern technology,
new machinery and the adoption of systems such as the Assembly Line coupled with
overconfidence in industries resulted in  the overproduction of consumer goods. 
  Lack of Credit: Banks were reluctant to make any new loans in the financial climate. The
lack of credit meant that people were unable to recover from the economic bust. The
downward spiral continued leading to foreclosures, homelessness and unemployment.
  Fall in demand: The market in consumer goods quickly dried up, too many products
were being manufactured due to overproduction and there with too few people earning
enough money to buy goods.

Socioeconomic Effects: : The Social Effects of the Great Depression relate to things
that affected people socially such as the way people lived, worked, their leisure time.
The socioeconomic effects are following there:
  Social Effects of Debt: Few Americans were prepared for the economic crash.
Carried away by the emergence of new products, the rise of Consumerism in the
1920s and the easy credit that was made available. Between. Many Americans
were in debt. Many lost their life savings. Those that became unemployed would
also lose their homes.
 Suicides: The reaction to the crash was a series of suicides by men who could not
handle their failure, shame, loss of prestige and loss of status in their
community. Suicide rates, which averaged 12.1 per 100,000 people in the
early1920s jumped to an alarming 18.9 per 100,000 people in 1929 and
remained high throughout.
  Medical Facilities: Homeless people were without access to medical or health
facilities and due to poor nutrition were unable to easily fight off illness and
disease. At least 33% of deaths were due to poverty related causes such as
homelessness.
 Social Effects of Unemployment: The major effect of the economic crisis was
mass unemployment. 20,000 businesses went bankrupt and closed. Industrial
production halved and foreign exports plummeted. Over 12 million people
became unemployed (25% of the population). Americans who lost their jobs
 could not repay their debts, feed themselves, pay their rent or mortgage or
support their family.
  Social Effects of Homelessness: Homelessness resulted in people living in
squalid living condition with inadequate sanitation and lack of clean drinking
water. The poverty-stricken homeless also went hungry and insufficient food and
poor nutrition lead to a variety of diseases and illnesses. Homelessness resulted
in numerous health issues and severe problems of a personal nature.

Recovery:
 The monetary contraction and the gold standard in causing the Great
Depression, it is not surprising that currency devaluations and monetary
expansion were the leading sources of recovery throughout the world.
 The monetary expansion that began in the United States in early 1933
was particularly dramatic. The American money supply increased nearly
42 percent between 1933 and 1937. This monetary expansion stemmed
largely from a substantial gold inflow to the United States, caused in part
by the rising political tensions in Europe that preceded World War II.
 Fiscal policy played a relatively small role in stimulating recovery in the
United States. Indeed, the Revenue Act of 1932 increased American tax
rates greatly in an attempt to balance the federal budget, and by doing so
it dealt another contractionary blow to the economy by further
discouraging spending.
 World War II played only a modest role in the recovery of the U.S.
economy. Despite the recession of 1937–38, real GDP in the United
States was well above its pre-Depression level by 1939, and by 1941 it
had recovered to within about 10 percent of its long-run trend path.