GREAT

DEPRESSI
ON
Smita Singh
BA Economics-III
A20018222005
CONTENTS
1. Introduction
2. Causes of great depression
3. Impact of great depression on economic level
4. Unemployment and the great depression
5. GDP and the economic contractions
6. Banking and financial sector
7. International impact
8. References
INTRODUCTI
ON
 INTRODUCTION

The Great Depression, a severe economic downturn in the 1930s, began in the United States and spread
globally. It was triggered by the 1929 stock market crash, which caused panic among investors and a
widespread sell-off of stocks. The crisis led to bank failures, reduced credit, and a vicious cycle of
economic contraction. The crisis was felt far beyond the United States, affecting other industrialized
nations as global trade contracted. Governments struggled to respond effectively, initially adopting
contractionary policies to balance budgets and restore confidence. However, it wasn't until the 1930s
that governments began to implement expansionary measures, such as increased government spending
and monetary stimulus, which helped lift the world out of the Great Depression. The Great Depression
shaped economic thinking for decades, leading to the adoption of Keynesian economics and the belief in
active government intervention to stabilize the economy. It also sparked skepticism towards unregulated
capitalism and inspired the implementation of social safety nets and financial regulations.
 CAUSES OF
THE GREAT
DEPRESSION
 CAUSES OF GREAT DEPRESSION

- The stock market crash of 1929.

- Bank failures and the banking crisis.

- Reduction in consumer spending.

- Global economic factors, including the impact of World War I.

 CAUSES OF GREAT DEPRESSION
01
Stock market crash
of 1929
The stock market crash, also known as "Black
Tuesday," occurred on October 29, 1929. It marked the
end of the "Roaring Twenties" and the beginning of
the Great Depression. The crash was caused by a
combination of factors, including excessive
speculation, overvalued stocks, and the widespread
use of margin trading. As stock prices plummeted,
investors lost large sums of money, leading to a
decline in consumer spending and investment.
02
Bank Failures and
the Banking Crisis
The stock market crash caused panic among
investors, leading to bank runs and bank failures.
The banking system was weakened by risky
lending practices, such as stock market
speculation loans. The collapse of banks reduced
credit availability, making it difficult for
businesses and individuals to borrow and invest,
exacerbated the economic downturn.
 CAUSES OF GREAT DEPRESSION
03
Reduction in
consumer spending
The stock market crash caused economic uncertainty,
leading to a significant decrease in consumer
confidence. This led to people cutting back on
spending and saving money, affecting the economy as
businesses faced declining demand, resulting in layoffs
and reduced purchasing power. This resulted in a
downward spiral of economic activity.
04
Global economic
factors
World War I and its aftermath significantly
influenced the Great Depression by disrupting
international trade, causing high government
debt, and leaving many countries economically
vulnerable. The Treaty of Versailles, which
imposed harsh reparations on Germany, led to
economic instability and political tensions in
Europe. The collapse of European economies and
global trade contraction significantly impacted the
United States, which relied heavily on
international trade.
 IMPACT OF THE
GREAT DEPRESSION
ON MACROECONOMIC
LEVEL
 IMPACT OF GREAT DEPRESSION

- Unemployment and the great depression

- GDP and economic contraction

- Banking and financial sector

- International impact
UNEMPLOYM
ENT& THE
GREAT
DEPRESSION
1. The surge in unemployment rates: The Great Depression was characterized by a massive increase in
unemployment rates. In the United States, the unemployment rate reached a staggering 25% by 1933,
meaning that a quarter of the labor force was without work. This surge in unemployment was primarily a
result of widespread business failures, bank closures, and a general economic collapse.
2. Mass layoffs and job losses across various industries: As the Depression took hold, businesses
faced significant financial difficulties. Many companies were forced to lay off workers or shut down
completely, leading to a wave of job losses across industries. Industries such as manufacturing, mining,
construction, and agriculture were particularly hard-hit. With fewer job opportunities available,
competition for the remaining positions intensified, making it even more challenging for the
unemployed to find work.
3. The social and economic consequences of high unemployment: The consequences of high
unemployment during the Great Depression were far-reaching and had a profound impact on society and
the economy.
- Poverty and homelessness: The lack of employment meant that many individuals and families were
unable to meet their basic needs. Poverty rates increased significantly, and homelessness became a
widespread problem as people lost their homes due to evictions and foreclosures.
- Decline in consumer spending: With a large portion of the population unemployed and struggling
financially, consumer spending plummeted. This created a vicious cycle, as reduced demand for goods
and services led to further job losses and business closures, exacerbating the economic downturn.
- Psychological and social effects: High unemployment rates took a toll on individuals' mental health
and overall well-being. Many experienced feelings of hopelessness, despair, and a loss of self-esteem.
Families and communities also suffered from the strain of financial hardship and the breakdown of
social support networks.
 GDP &
ECONOMIC
CONTRACTIO
N
1. Reduction in consumer spending:
With widespread unemployment and financial hardship,
consumer spending plummeted. People had less disposable
income to purchase goods and services, leading to a decline in
aggregate demand. This decrease in consumer spending had a
negative impact on businesses, which in turn reduced production
and contributed to the overall economic contraction.

2. Decline in investment:
The uncertainty and financial instability of the Great Depression
led to a significant reduction in investment. Businesses were
hesitant to invest in new projects or expand their operations due
to a lack of confidence in the economy. Reduced investment
further added to the contraction of economic activity and
contributed to the decline in GDP.
3. Contraction in international trade:
The Great Depression was a global phenomenon, and
international trade suffered as well. Countries implemented
protectionist policies, such as imposing high tariffs and trade
restrictions, to shield domestic industries from foreign
competition. These policies resulted in a decline in international
trade, which significantly impacted export-oriented industries
and further contracted the overall economy.

4. Banking and financial sector crisis:

The Great Depression was characterized by widespread bank
failures and a financial sector crisis. As banks collapsed, people
lost their savings, and credit became scarce. The lack of access
to credit and the instability in the financial system hindered
business investments and impaired economic growth.
BANKING &
FINANCIAL
SECTOR
 BANKING PANICS AND CARE

The stock market crash of 1929 and subsequent economic downturn created a sense of panic among
depositors. Worried about the safety of their savings, individuals rushed to withdraw their money from
banks, leading to a wave of bank runs. As depositors withdrew their funds, banks faced liquidity
shortages and struggled to meet the demand for withdrawals. Many banks were unable to fulfill these
requests, resulting in numerous bank failures.

The banking failures had a devastating effect on the economy. Bank closures led to the loss of people's
savings, leaving them financially devastated. Businesses also suffered as they lost access to credit,
making it difficult for them to maintain operations or invest in growth. The banking panics and
failures further deepened the economic contraction and contributed to the severity of the Great
Depression.
 THE ROLE OF FEDERAL RESERVE

The Federal Reserve, as the central bank of the United States, played a crucial role during the Great
Depression. However, its actions were widely criticized for exacerbating the crisis. In the early years
of the Depression, the Federal Reserve pursued restrictive monetary policies, including raising interest
rates and reducing the money supply. These policies were aimed at maintaining the gold standard and
controlling inflation but had the unintended consequence of tightening credit and worsening the
economic downturn.

The Federal Reserve's reluctance to act as a lender of last resort during the banking panics also
contributed to the instability in the banking system. By not providing sufficient liquidity to banks in
distress, the Federal Reserve allowed the crisis to escalate, resulting in more bank failures and a
further contraction of credit.
 THE ESTABLISHMENT OF FDIC

In response to the banking crisis and the need to restore public confidence in the banking system, the
U.S. government established the FDIC (Federal Deposit Insurance Corporation) in 1933. The FDIC
was created to provide deposit insurance, guaranteeing the safety of depositors' funds in the event of
bank failures. This measure was crucial in restoring confidence in the banking system, as it reassured
individuals that their deposits were protected, even if a bank failed.

The establishment of the FDIC helped stabilize the banking sector by preventing widespread bank
runs and reducing the risk of future banking panics. It provided a safety net for depositors and
encouraged them to keep their funds in the banking system. The FDIC's role in protecting deposits and
supervising banks continues to this day, promoting stability and confidence in the U.S. banking
system.
INTERNATIONAL
IMPACT
1. Global spread of the Depression: The economic downturn of the Great Depression was not limited
to the United States but spread to other countries around the world. The interconnectedness of
economies through international trade and financial systems played a crucial role in transmitting the
crisis. As the United States experienced a severe economic contraction, its reduced demand for imports
affected exporting countries, leading to a decline in their economic activity as well. The crisis spread
through trade and financial channels, causing a synchronized global downturn.

2. Impact on international trade: The Great Depression had a detrimental effect on international
trade. As countries faced economic hardships, they implemented protectionist measures to shield their
domestic industries from foreign competition. Governments imposed high tariffs, trade barriers, and
import restrictions to protect domestic jobs and industries. These protectionist policies aimed to
stimulate domestic production and limit imports but resulted in a significant reduction in international
trade.
The decline in international trade worsened the economic contraction as countries faced reduced
export opportunities and decreased access to foreign markets. Industries dependent on exports, such as
manufacturing and agriculture, suffered from decreased demand and falling prices. The decline in
trade further deepened the economic downturn, contributing to reduced production, layoffs, and
increased unemployment.
3. Tariffs and trade wars: The protectionist policies adopted during the Great Depression led to the
escalation of trade wars. Countries engaged in retaliatory actions by imposing tariffs on each other's
goods, further restricting trade. The most infamous example is the Smoot-Hawley Tariff Act passed by
the United States in 1930, which raised tariffs on thousands of imported goods. This act triggered
retaliatory measures from other countries, resulting in a downward spiral of trade restrictions. The
trade wars exacerbated the economic contraction and damaged international relations.

4. Economic nationalism and decline in globalization: The Great Depression marked a shift towards
economic nationalism and a decline in globalization. Countries turned inward, focusing on protecting
their domestic industries and reducing dependence on foreign trade. The belief in free trade and
globalization, which had been prevalent in the early 20th century, gave way to protectionism and self-
sufficiency. This shift had long-lasting effects on global trade patterns and hindered the growth of
international economic cooperation
REFERENCES
1. https://en.wikipedia.org/wiki/Great_Depression
2. https://www.investopedia.com/terms/g/great_depression.asp
3. https://www.studentsofhistory.com/unemployment-during-the-great-depression
4. https://www.britannica.com/money/topic/Great-Depression
5. https://www.stlouisfed.org/the-great-depression/curriculum/economic-episodes-i
n-american-history-part-3
6. https://www.youtube.com/watch?v=FxOw1lAz7Gs
7. https://www.history.com/news/bank-failures-great-depression-1929-crash
8. https://www.encyclopedia.com/economics/encyclopedias-almanacs-transcripts-a
nd-maps/international-impact-great-depression
THANK YOU