OPPapers.com

Great Depression

The Great Depression
The Great Depression lasted the longest and was the most painful recession ever in American history, and people suffered from it for more that ten years. The Great Depression originated at United States, and became an international widespread issue. It leads to a huge collapse and failure in the worldwide economy in terms of demand, supply and production.
It is a common misconception that the stock market crash in 1929 was the Great Depression. It is closely related, but was not enough to cause the recession. According to Cadlwell and O’Driscoll,What Caused the Great Depression, they suggest there are three main explanations to expound the causes of the Great Depression: the Keynesian Explanation, the Monetarist Explanation and the International Explanation. The Keynesian Explanation focuses on a fall in total demand, which directly impacted the workforce leading to a long periods of high unemployment rates. When consumer spending falls, there is dysfunction in the whole business chain that continues to worsen the economic system. The Monetarist explanation emphasizes the actions that the Federal Reserve System (Fed) has in response to a financial crisis. Cadlwell and O’Driscoll say that “the Federal Reserve System raised interest rates in early 1928, which discouraged business borrowing and spending and brought about the decline in production that began that summer interest rate, were raised again in 1930 and 1931”(Cadlwell and O’Driscoll, 72). The Fed is actually increased the burden of people at the same time creating a systematic risk that every field of business that could not diversify, the tight policy even worsens the situation. Furthermore, when banks could not stand the crisis, the Fed refused to bail them out which according to the congress the Fed should have done to prevent a total banking failure. Therefore, the problem of illiquidity capital flowed in the country.
According to international explanation,...