I’m glad you asked. That's a big question and it's one that Economist have struggled with ever since. they would like find out the cause so they can prevent it from ever happening again. Only about three percent of Americans owned stock at the time, and the markets recovered a lot of their value by 1930, although they did go down again because there was depression occurring; even though big Banks and corporations were buying a lot of stock, much of it was with borrowed money known as margin buying and all of that still was not nearly a deep enough pothole to sink the world's economy. If I had to name the single cause of the Great Depression it might be America's weak banking system.
Classical economists argue that unemployment is caused by supply side factors – real wage unemployment, frictional unemployment and structural factors. They downplay the role of demand deficient unemployment. Keynesians place a greater emphasis on demand deficient unemployment. For example the current situation in Europe (2014), a Keynesian would say that this unemployment is partly due to insufficient economic growth and low growth of aggregate demand (AD) President Ronald Reagan, whose 1980 election victory was aided by a recession that year, introduced a tax cut, combined with increased defense spending, in 1981, rejected Keynesian economics and embrace supply-side arguments
This cycle proceeds on and helps support a typical, working economy. At the point when the Great Depression hit, individuals' normal response was to store their cash. Under Keynes' hypothesis, this halted the circular stream of cash, keeping the economy at a stop. Keynes' answer for this poor financial state was to "Prime the pump". He contended that the government ought to venture into increment spending either by expanding the cash supply or by really purchasing things itself.
Before the 1930’s, no one knew that an impending doom to the American economy would happen. The Great Depression was an extremely tough time in America’s economic history with invested stock prices plummeting, paying jobs being very scarce, as well as having citizens be scared for America’s future-- little did they know that the next president would help to make the economy recover. President Franklin Delano Roosevelt was the 22nd president of the United States from 1933 to 1945. He helped to strengthen and comfort America during two major events in American History. His law, the New Deal helped to reform the United State’s failing economy while helping people find jobs during this tough time in the 1930’s.
In ' 'The Twilight of the Old Consensus, ' ' Gordon provides a trace of the fiscal policy after the end of World War 1 and how it led to the shock experienced during the Great depression. Finally, in ' 'Keynesianism and the Madison Effect, ' ' Gordon argues that after the end of World War 2, economists relied on Keynesian deficit-spending theory to dictate fiscal and monetary policy. These chapters have been used to sum up the
Moreover if the country wants to use Fiscal Policy in an inflation situation the government should regulate changes in tax and their spending. In regulating tax policies and spending the government need time so the monetary policy is considered the best option when there is an inflation. Deflation in an economy is considered a serious issue around the world because it is considered that it could turn a recession into a full blown depression. This happens due to prices of goods and services are already
The heart piece of the programme was the economic reform programme, that favored freedom instead of social insurance, by emphasizing deregulation in the private sector, privatisation of companies and tax reductions and a ‘give to get’ scheme to curb unemployment. Especially the privatization of companies played a huge role in minimizing the budgetary deficits. Companies like British Telecom, BP and British Gas were sold for prices as high as £7 billion. In terms of foreign relations, the government under Thatcher supported and was supported by the US government, which was led by Reagan. Reagan pursued politics, that were much alike those by the UK government and thus a cooperation felt naturally.
Keynesian economic theory is a failure The Great Recession was brought about by reckless lending. The aftermath left the credit market in a tight squeeze and demand dropped. The economists led by the then FED Chairman Ben Bernanke embarked upon the easy monetary policy following the Keynesian theory. The famous economic theory is named after the British economist John Maynard Keynes, who published it in his book, The General Theory of Employment, Interest and Money in 1936. The basic principle is to generate aggregate demand by a combination of fiscal and monetary policy.
The researchers make use of the theory of Employability by John Maynard Keynes which is classified into two: The Classical Theory of Employment and the Keynesian theory of employment. The classical theory assumes the prevalence of full employment. The “Great Depression” of 1929 to 1934, engulfing the entire world in widespread unemployment, low output and low national income, for about five years, upset the classical theorist. It applies the standard demand and supply analysis to labor market and treats to unemployment as a phenomenon that arises from the persistence of wages at the level higher than that which clears the market. This results to the rise of Keynesian theory of Employment.
A data of study is recorded from the period from 1970-2010 to indicate the relationship. They stated that for the government to stabilize its currency, it should not focus on inflation targeting. So, inflation in a home country is one very important factor that may lead to currency depreciation. According to Bleaney (1996), there exist a strong positive correlation between exchange rate and inflation. In a study of a sample of 41 developing countries from 1980 until 1990, he found a negative link between exchange rate and growth and a direct relationship between exchange rate and inflation.