Definition
The Great Depression refers to a severe worldwide economic downturn that lasted from 1929 to 1939. It started in the United States following a major fall in stock prices that began around September 4, 1929, and became worldwide news with the stock market crash of October 29, 1929. It represented the deepest and longest-lasting economic downturn in the history of the Western industrialized world up to that time.
Key Takeaways
- The Great Depression was a severe worldwide economic depression that took place during the 1930s, starting in the United States. It was the longest, most widespread, and deepest depression of the 20th century.
- The Great Depression had devastating effects both in the rich industrialized countries and the poor ones. It led to drastic drops in output, severe unemployment, and acute deflation. International trade plummeted by more than 50%, and investment dropped steeply.
- Many policies and institutions such as the Federal Reserve, the Gold Standard, and Government policies are attributed to causing or exacerbating the Great Depression. It led to significant changes in economic theories and policies, shaping the post World War II world and laying groundwork for future economic discourse.
Importance
The term “Great Depression” is critically important in finance because it refers to the severe worldwide economic downturn that lasted from 1929 to 1939.
Recognized as the longest-lasting economic decline in the industrialized Western world, this period brought about widespread economic distress such as high unemployment rates, sharp declines in production and stock market crashes.
Its significance lies not only in its impact during the time, but also in how it shaped financial, economic and political policies worldwide in the aftermath.
The Great Depression serves as a key example of how financial instability can disrupt economies on a global scale.
Consequently, understanding it helps policymakers and economists to take preventive measures against a similar occurrence in the future.
Explanation
The Great Depression, which was a severe worldwide economic downturn that occurred in the decade preceding World War II, serves as a significant historical example of the volatility and potential risks within the global economic system. It is not a financial term or an instrument that is used in finance; rather, it is a critical historical event that provides economists and finance professionals with important lessons about economic resilience, policy-making, and financial management.
It underscores the importance of monetary stability, effective government intervention, and sustainable financial practices to prevent similar future occurrences. This event is used as a reference point in financial and economic studies for understanding the gravity and transforming influence a prolonged economic downtown can have on local and global economies.
The Great Depression is frequently referred to when examining the impacts of severe economic contraction on industrial production, employment, and trade. It is also utilized as a lens to see how different fiscal and monetary policies affect economic recovery.
As such, it serves as an essential tool for forecasting potential outcomes of financial decisions and economic policies.
Examples of Great Depression
United States 1929-1939: The most infamous Great Depression occurred in the U.S. following a major fall in stock prices that began around September 4,
This led to the collapse of the stock market on October 29, 1929, known as Black Tuesday. The depression had devastating effects in both the industrialized countries and those which exported raw materials. Unemployment rose, and conditions didn’t significantly improve until 1939 as World War II was beginning.
Germany’s Weimar Republic (1929–1933): While the entire globe was suffering from the Great Depression, Germany was hit particularly hard due to the impacts of the Treaty of Versailles in the wake of WWI. The nation faced severe unemployment (over 30% at its peak), a failing economy, and massive hyperinflation. This economic hardship was part of what made the environment ripe for the rise of Adolf Hitler.
Canada 1929-1939: Canada was one of the hardest hit nations during the Great Depression. Prices of raw materials and commodities dropped, trade declined, and unemployment skyrocketed. The Prairies faced drought, leading to an ecological disaster known as the Dust Bowl. The government’s response was perceived as ineffective, leading to political shifts, contributing to the creation of the welfare state.
FAQs on Great Depression
1. What was the Great Depression?
The Great Depression was the worst and longest economic downturn in the history of the Western industrialized world. It took place during the 1930s, beginning in the United States following the stock market crash in October 1929.
2. How long did the Great Depression last?
The Great Depression lasted approximately 10 years, from 1929 to 1939. It ended with the onset of the World War II.
3. What caused the Great Depression?
Several factors led to the Great Depression, including the stock market crash of 1929, bank failures, reduction in purchasing power, American economic policy with Europe, and drought conditions.
4. How did the Great Depression end?
The Great Depression essentially ended with the start of the World War II. War spending stimulated the economy and effectively ended the Depression.
5. What were the effects of the Great Depression?
The Great Depression had severe effects both in the US and the world. It led to massive unemployment and significant economic distress. Furthermore, it spurred significant changes in economic policy and led to many political changes.
Related Entrepreneurship Terms
- The Stock Market Crash of 1929
- Bank Failures
- Federal Reserve Monetary Policy
- New Deal Economic Programs
- Dust Bowl
Sources for More Information
- History.com: A comprehensive resource on the events of world history, including the Great Depression.
- Investopedia: An educational website specializing in finance and investing, offers insights into the economical implications of the Great Depression.
- EconomicsHelp.org: An internet resource dedicated to helping people understand economics, including in-depth articles on the Great Depression.
- Library of Congress: The U.S’s oldest cultural institution, provides incredible amounts of historical and academic information including on the Great Depression.
