Great Depression

Definition

The Great Depression was a severe worldwide economic downturn that lasted from 1929 until the late 1930s, marked by massive unemployment, a significant decline in industrial output, and widespread poverty. This economic crisis had profound effects on global economies and led to significant changes in government policies regarding economic intervention and international trade.

5 Must Know Facts For Your Next Test

1. The Great Depression started with the Stock Market Crash of 1929, which resulted in a loss of billions of dollars in wealth and widespread panic among investors.
2. Unemployment rates soared during the Great Depression, reaching as high as 25% in the United States, which had devastating effects on families and communities.
3. The crisis led to a decline in consumer spending and investment, resulting in deflation and further exacerbating the economic downturn.
4. Governments around the world responded with various measures, such as protectionist trade policies, which often worsened the situation by limiting international trade.
5. The Great Depression reshaped economic thought, leading to the acceptance of Keynesian economics that emphasized government intervention as a necessary means for recovery.

Review Questions

• How did the Great Depression influence government policies regarding economic intervention?
  • The Great Depression prompted many governments to reconsider their approach to economic management. In response to the severe unemployment and economic distress, leaders began to implement interventionist policies aimed at stimulating growth. This shift included increased public spending, job creation programs, and regulatory reforms to stabilize financial systems, showcasing a departure from laissez-faire economics.
• Evaluate the impact of protectionist measures taken during the Great Depression on global trade.
  • Protectionist measures, such as tariffs and import quotas, were widely adopted by countries during the Great Depression as they sought to protect domestic industries. However, these measures had a detrimental effect on global trade by reducing imports and exports, leading to retaliatory actions from other nations. This cycle of protectionism contributed to a significant collapse in international trade volumes, deepening the economic crisis worldwide.
• Analyze the long-term effects of the Great Depression on international economic relations and policy frameworks.
  • The Great Depression fundamentally altered international economic relations by demonstrating the interconnectedness of global markets and economies. The crisis led to a reevaluation of existing trade policies and established a precedent for greater economic cooperation among nations. In its aftermath, frameworks such as the Bretton Woods system emerged, aiming to create stability through regulated exchange rates and increased collaboration between countries on economic matters.

Related terms

Stock Market Crash of 1929: A sudden and dramatic decline in stock prices that occurred in late October 1929, which is often considered the initial event that triggered the Great Depression.

New Deal: A series of programs and policies implemented by U.S. President Franklin D. Roosevelt in response to the Great Depression, aimed at economic recovery and social reform.

Global Trade Collapse: The significant reduction in international trade during the Great Depression, as countries adopted protectionist policies, leading to decreased global economic activity.