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    analyse any two factors that were responsible for the great depression in america during 1929.

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    Causes of the Great Depression

    What brought about the worst economic downturn in modern history?

    Causes of the Great Depression

    By Brian Duignan

    National Archives, Washington, D.C. (12573155)

    The Great Depression of the late 1920s and ’30s remains the longest and most severe economic downturn in modern history. Lasting almost 10 years (from late 1929 until about 1939) and affecting nearly every country in the world, it was marked by steep declines in industrial production and in prices (deflation), mass unemployment, banking panics, and sharp increases in rates of poverty and homelessness. In the United States, where the effects of the depression were generally worst, between 1929 and 1933 industrial production fell nearly 47 percent, gross domestic product (GDP) declined by 30 percent, and unemployment reached more than 20 percent. By comparison, during the Great Recession of 2007–09, the second largest economic downturn in U.S. history, GDP declined by 4.3 percent, and unemployment reached slightly less than 10 percent.

    There is no consensus among economists and historians regarding the exact causes of the Great Depression. However, many scholars agree that at least the following four factors played a role.

    The stock market crash of 1929. During the 1920s the U.S. stock market underwent a historic expansion. As stock prices rose to unprecedented levels, investing in the stock market came to be seen as an easy way to make money, and even people of ordinary means used much of their disposable income or even mortgaged their homes to buy stock. By the end of the decade hundreds of millions of shares were being carried on margin, meaning that their purchase price was financed with loans to be repaid with profits generated from ever-increasing share prices. Once prices began their inevitable decline in October 1929, millions of overextended shareholders fell into a panic and rushed to liquidate their holdings, exacerbating the decline and engendering further panic. Between September and November, stock prices fell 33 percent. The result was a profound psychological shock and a loss of confidence in the economy among both consumers and businesses. Accordingly, consumer spending, especially on durable goods, and business investment were drastically curtailed, leading to reduced industrial output and job losses, which further reduced spending and investment.Banking panics and monetary contraction. Between 1930 and 1932 the United States experienced four extended banking panics, during which large numbers of bank customers, fearful of their bank’s solvency, simultaneously attempted to withdraw their deposits in cash. Ironically, the frequent effect of a banking panic is to bring about the very crisis that panicked customers aim to protect themselves against: even financially healthy banks can be ruined by a large panic. By 1933 one-fifth of the banks in existence in 1930 had failed, leading the new Franklin D. Roosevelt administration to declare a four-day “bank holiday” (later extended by three days), during which all of the country’s banks remained closed until they could prove their solvency to government inspectors. The natural consequence of widespread bank failures was to decrease consumer spending and business investment, because there were fewer banks to lend money. There was also less money to lend, partly because people were hoarding it in the form of cash. According to some scholars, that problem was exacerbated by the Federal Reserve, which raised interest rates (further depressing lending) and deliberately reduced the money supply in the belief that doing so was necessary to maintain the gold standard (see below), by which the U.S. and many other countries had tied the value of their currencies to a fixed amount of gold. The reduced money supply in turn reduced prices, which further discouraged lending and investment (because people feared that future wages and profits would not be sufficient to cover loan payments).The gold standard. Whatever its effects on the money supply in the United States, the gold standard unquestionably played a role in the spread of the Great Depression from the United States to other countries. As the United States experienced declining output and deflation, it tended to run a trade surplus with other countries because Americans were buying fewer imported goods, while American exports were relatively cheap. Such imbalances gave rise to significant foreign gold outflows to the United States, which in turn threatened to devalue the currencies of the countries whose gold reserves had been depleted. Accordingly, foreign central banks attempted to counteract the trade imbalance by raising their interest rates, which had the effect of reducing output and prices and increasing unemployment in their countries. The resulting international economic decline, especially in Europe, was nearly as bad as that in the United States.Decreased international lending and tariffs. In the late 1920s, while the U.S. economy was still expanding, lending by U.S. banks to foreign countries fell, partly because of relatively high U.S. interest rates. The drop-off contributed to contractionary effects in some borrower countries, particularly Germany, Argentina, and Brazil, whose economies entered a downturn even before the beginning of the Great Depression in the United States. Meanwhile, American agricultural interests, suffering because of overproduction and increased competition from European and other agricultural producers, lobbied Congress for passage of new tariffs on agricultural imports. Congress eventually adopted broad legislation, the Smoot-Hawley Tariff Act (1930), that imposed steep tariffs (averaging 20 percent) on a wide range of agricultural and industrial products. The legislation naturally provoked retaliatory measures by several other countries, the cumulative effect of which was declining output in several countries and a reduction in global trade.

    स्रोत : www.britannica.com

    The Causes of the Great Depression

    The student understands the causes of the Great Depression.

    The Causes of the Great Depression

    SECTIONS

    Introduction—What is the Great Depression?

    The Stock Market Crashes!

    Bank Failures and the Federal Reserve System

    The Smoot-Hawley Tariff

    The Dust Bowl

    Introduction—What is the Great Depression?

    The Stock Market Crashes!

    Bank Failures and the Federal Reserve System

    The Smoot-Hawley Tariff

    Introduction—What is the Great Depression? The Stock Market Crashes! Bank Failures and the Federal Reserve System The Smoot-Hawley Tariff The Dust Bowl

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    स्रोत : www.texasgateway.org

    What Caused the Great Depression?

    Dave Wheelock discusses suggested causes including: the stock market crash, the collapse of world trade due to the Smoot-Hawley Tariff, government policies, bank failures and panics, and the collapse of the money supply. (Part 5 of The Great Depression presentation)

    What Caused the Great Depression?

    Economic Episodes in American History: The Great Depression, Part 5

    What were the major causes of the Great Depression? Among the suggested causes of the Great Depression are: the stock market crash of 1929; the collapse of world trade due to the Smoot-Hawley Tariff; government policies; bank failures and panics; and the collapse of the money supply. In this video, Great Depression expert David Wheelock of the St. Louis Fed discusses the leading theories.

    David Wheelock gives a presentation on “The Great Depression” as part of an economic education workshop at the St. Louis Fed. Recorded July 11, 2013.

    Video Transcript

    Part 1: Why Do We Still Study the Great Depression? (5:55)

    Part 2: Some Useful Terms (7:03)

    Part 3: How Great Was the Great Depression? (3:06)

    Part 4: The Great Recession vs. the Great Depression (6:25)

    Part 5: What Caused the Great Depression? (9:59)

    Part 6: The Role of Bank Failures and Panics (11:33)

    Part 7: Where Was the Fed? (6:48)

    Part 8: What Caused the Recovery? (3:47)

    Part 9: Lessons Learned and Concluding Remarks (3:01)

    For additional Great Depression-related multimedia resources, from newsreels to oral histories, visit our audio, video and interview series pages.

    स्रोत : www.stlouisfed.org

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