Special Topic 6. Lessons from the Great Depression.

Business

The stock market crash in 1929 is quoted as the beginning of the Great Depression, but the question is: Is it really the only reason for it The answer is no, because the stock price for an individual business only reflects present information about the future earnings stream of that particular organization. Stock market crash might be a reason for individuals to increase their liquidity preference, which led them to store money. Decrease in stock prices in 1929 reduced the wealth, and thus, increased the reduction in aggregate demand and output. Reduction in stock prices caused the initial economic decline, but the severity and length of the great depression were the result of other elements. There were four main reasons due to which Great Depression was very severe and long: a) Reduction in money supply: the supply of money reduced by almost 33 percent in 1929, and it took another fall in 1937. b) Smooth-Hawley trade bill: This act was approved in June of 1930 and increased tariffs by 50 percent on imported goods in the United States, which led to a significant reduction in the world trade. c) Sharp increase in the tax in 1932: increased in the tax reduced the demand weakened the incentive of investors to invest. d) Changes in structural policies: determined major changes created insecurity and weakened the investment and business planning.

It is important to note that the stock market crash in 1929 was not the main reason for the Great Depression. The stock market reflects the heath of any particular economy. Most of the people did not even notice the stock market crash, because more than 90 percent of them did not invest in the stock market. Economic policies of the United States government were one of the main reasons of the Great Depression in 1929. Government officials assumed that trade was the key business of the United States. Therefore, the government did not take any action against unwanted investment. Congress approved high tariffs that protected domestic industries but hampered the international trade. There were four main areas, where the government policy proved to be a failure, during the period of Great Depression: a) Reduction in money supply: the supply of money reduced by almost 33 percent in 1929, and it took another fall in 1937. b) Smooth-Hawley trade bill: This act was approved in June of 1930 and increased tariffs by 50 percent on imported goods in the United States, which leads to a significant reduction in world trade. c) Sharp increase in tax in 1932: increased in the tax reduced the demand weakened the incentive of investors to invest. d) Changes in structural policies: determined major changes created insecurity and weakened the investment and business planning.

Franklin Roosevelt considered as one of the greatest president because he played a major role in eliminating the Great Depression of 1929. America was in an economic crisis, as people lost their job, home, and farmers lost their land. Franklin Roosevelt realized that he had to do something special to overcome the economic crisis. He applied "The New Deal," by which he created jobs for people by building bridges, roads, and school. They even paid people for cleaning the parks and roads. This led to the gradual recovery of American economy. He also started a Social Security program to help the people of America in their old age. Millions of American people even today get the benefit of Social Security program.

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