question_answer

Explain the causes of the Great Depression.

Or

Examine the factors and forces responsible for the Great Depression in 1929.

 

Answer:

During the period after the First World War most parts of the world experienced catastrophic decline in production, employment, income and trade. Agricultural region and communities were the worst affected. This was because the fall in agricultural prices was greater and more prolonged than that in the prices of industrial goods.

The Great Depression of 1928 was caused by a combination of several factors. As prices slumped and agricultural incomes declined the farmers tried to increase their production and bring a larger volume of produce to the market to maintain their overall income. This worsened the situation by pushing down the prices of farm produce further. Various goods rotted in the markets because of lack of buyers.

Secondly most of the countries of Europe borrowed money from US after the war. Now US overseas lenders panicked at the sign of financial crisis. In the first half of 1928, they began to withdraw their loans. Countries that depended crucially on US loans faced an acute economic crisis.

With the fall in prices and the prospect of a depression US banks slashed domestic-lending and stopped bank loans. Farms could not sell their harvests, business collapsed. Ultimately the US banking system collapsed.  People lost their life's savings, were unable to recover investments, collect loans and repay depositors.

Thousands of banks were bankrupt and were forced to close. Factories closed down leading to unemployment of hundreds of chucked people which further aggravated the crises.

The consumerist prosperity of 1920s disappeared in a short time. The Great Depression thus had great impact not only on the economy of US but also on countries of the industrial world.