Definition
The Great Depression was a severe worldwide economic downturn that happened during the 1930s. It began in the United States after the stock market crash in October 1929, leading to widespread unemployment and poverty. It was the longest, deepest, and most widespread depression of the 20th century.
Phonetic
The phonetic spelling of “Great Depression” is /ɡreɪt dɪˈprɛʃən/.
Key Takeaways
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- The Great Depression was the most severe and longest-lasting economic downturn in the history of the Western industrialized world. It began after the stock market crash in October 1929, which led to significant declines in jobs and deflation.
- High unemployment rates, up to 25% in the United States, were a common feature of the Great Depression. Many businesses collapsed, resulting in fewer opportunities for employment. This led to mass unemployment and widespread poverty.
- The recovery from the Great Depression was triggered primarily by increased government spending during World War II. The New Deal programs launched by President Franklin D. Roosevelt also contributed to recovery by reforming and regulating the financial systems, and providing relief and jobs.
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Importance
The term “Great Depression” is crucial in business/finance as it refers to the most severe global economic downturn in the 20th century, spanning from 1929 to 1939. Its study provides valuable lessons about the consequences of extreme economic mismanagement, market speculation, and the detrimental effects of protectionist policies. It led to significant developments in government policy, economics, and theories. In the United States, it led to the creation of critical financial regulations and social safety net programs like the Securities and Exchange Commission (SEC) and Social Security. The Great Depression’s aftermath reshaped the global economic landscape, influencing monetary policy and international trade negotiations for years to come. It serves as a stark reminder of the interconnectedness of the global economy and the potential for localized financial mistakes to provoke widespread economic distress.
Explanation
The Great Depression is not a business or finance term in the traditional sense, but rather, it refers to a prolonged period of severe economic downturn that had widespread impacts on global economies. Occurring primarily from 1929 until late 1930s, the Great Depression was triggered by the infamous Wall Street Crash in October 1929 and was characterized by the collapse of stock markets, banking failures, and high rates of unemployment.While it’s generally not thought of as having a purpose or use, the Great Depression deeply influenced economic policy and theory. It led to significant changes in the way financial systems and economic policies were developed and managed by governments. These changes were geared towards creating safeguards and economic support systems to prevent such a severe financial crisis from happening again. The lessons learned and reforms implemented as a result of the Great Depression continue to influence financial and economic principles today.
Examples
1. Stock Market Crash of 1929 in the United States: This was the event that triggered the Great Depression – a severe worldwide economic depression lasting from 1929 to 1939. The crash marked the beginning of years of economic hardship around the globe, with millions of people losing their jobs and becoming homeless.2. American Agriculture during the 1930s: During the Great Depression, changes in climate combined with economic factors led to the Dust Bowl, a phenomenon which devastated the American agricultural industry. Many farms went bankrupt, leading to widespread unemployment and incredibly difficult living conditions.3. Germany after World War I: Germany was also greatly affected by the Great Depression due to the reparations they were required to pay after World War I, which caused hyperinflation. The economic situation in Germany was a factor contributing to the rise of the Nazi party and the start of World War II.
Frequently Asked Questions(FAQ)
What was the Great Depression?
The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States during late 1929 and lasted until the early 1940s.
What caused the Great Depression?
The Great Depression was primarily caused by a combination of stock market crash in 1929, banking panics, and under-consumption. Also, economic policies pursued by the American government and poor weather conditions which led to the Dust Bowl conditions also contributed to prolonged economic crisis.
How did the Great Depression end?
The Great Depression ended with the onset of World War II. The war stimulated American industrial production, thus ending the country’s unemployment problem and introducing new technologies that fueled post-war prosperity.
What were the major effects of the Great Depression?
The Great Depression resulted in significant changes in the U.S., like increased government involvement in the economy and creation of programs like Social Security. Globally, it had severe effects on wealth distribution, increase in unemployment, and political transformations.
Who was the President during the Great Depression?
The initial years of the Great Depression occurred under President Herbert Hoover’s term. In 1933, Franklin D. Roosevelt took office and introduced policies known as the New Deal to mitigate the effects of the Depression.
How long did the Great Depression last?
The Great Depression lasted for about a decade, from 1929 to the early 1940s.
How did the Great Depression affect people’s lives on a day-to-day basis?
The Great Depression led to widespread unemployment, poverty, lower incomes, lesser opportunities, increased crime rates, and an overall decrease in quality of life.
How did the Great Depression impact global economy?
The Great Depression significantly affected the world economy, driving many countries to alter their economic and political structures. It led to severe trade restrictions and retaliatory tariffs.
How did the Great Depression shape the future economic policies?
The Great Depression led to significant policy shifts including major changes in the role of government in the economy. It gave rise to keynesian economics, a theory that advocates for increased government expenditures and lower taxes to stimulate demand and pull the economy out of depression.
Related Finance Terms
- Stock Market Crash of 1929
- New Deal
- Unemployment Rate
- Dust Bowl
- Bank Failures
Sources for More Information
