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History homework questions Chapter 28 A

History
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What caused the US stock market to collapse in 1929 & how did the Depression that gripped the US for over a decade reverberate across the globe?

Apr 8th, 2015

The Great depression started in the US after stock prices started to decline in September 1929, and specifically after the stock market crash on October, 29, 1929, also known as Black Tuesday.

There are two main theories that explain the Great Depression – keynesian, demand-driven and the monetarist.

Keynesian theories state that at some point there developed a large–scale loss of confidence which hence led to reduction in consumption and reduction in investments. Then after panic and deflation , many believed they can escape further losses by staying away from the market. Holding money became profitable because of the prices drop and that caused even bigger drop of demand.

Monetary theories state, that Depression started as a regular recession, but because of the decline of monetary supply, caused by banking crisis,  which worsened the situation causing recession turn into the Great depression.

There are is also common position about how to handle if similar situation should arise: government should try to keep money supply and keep demand on stable growth path. In case of overly prolonged recession central banks should provide liquidity into the banking system and the government should cut taxes and motivate spending in order to keep nominal money stock and to make sure total nominal demand will not collapse.

Other, not so widely supported theories are the following: Expectations hypothesis, Debt Deflation and Heterodox theories.

The Great Depression had devastating consequences all over the globe, Including but not limited to: Great Depression both in Austria and Canada, causing high unemployment rates and civil unrests, bringing to power Nazi (NSDAP) party in Germany as a result of economic crash, in France it resulted in high unemployment, riots and increased popularity of Ultra-nationalist groups, the effects were devastating in Great Britain – especially industrial northern regions -exports fell by 50 % and unemployment doubled – up to 20%. Latin American countries were severely impacted by The Great depression because of high levels of U.S. investments in Latin economies.


Apr 8th, 2015

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