The Great Depression In Terms Of Macroeconomics

3577 words - 14 pages

The Great Depression: When Great Despair Brings Great KnowledgeThe United States was built on an idea that sober means creates sober measures. But what happens when those moderate times turn into trying times with drastic complications? The Great Depression was the worst economic slump in United States history, but by no means the only depression that our nation as endured. This depression is arguably one of the most misunderstood events in America's history. The magnitude of this "Great Depression" was so severe, that it affected the rest of the industrialized world. This Depression officially started in 1929 and continued for about a decade. Yet the causes for the Depression had been looming for some time. There are many key factors that brought about this depression, but it can be blamed mainly on the unequal distribution of wealth during the 1920's, stock market speculation, and the lack of regulation. This lack of regulation is proof to some economists of how unregulated capitalism is not best for our nation, and only economic regulations can save capitalism.This imbalance in wealth in the 1920's created a very unstable government (Barber 4). The speculation in the stock market in the 1920's also caused many people to buy their stocks with borrowed money, and once they acquired the stocks they used them as collateral for buying more stocks (Barber 5). This boom in the stock market was also very unsteady, because it was based on borrowed money and false positive speculation. When this optimism was lost by investors the stock market collapsed. During the 1920's the economy was not stable. Since wealth was not spread evenly, and most of the money was in with the few families who saved and invested rather than spent their money on American goods, the supply was greater than the demand (Carlstrom 1). This caused the prices to go down, and the American people had trouble affording things. The unevenness of the prosperity of the United States also made it difficult to recover. The government had even setup agencies specifically to prevent depressions and other related problems. This agency was called the Federal Reserve Board. This board was setup to be the lender of the last resort for banks in order to prevent collapses, that had taken place in earlier years. These and other federal actions can be directly linked to many of the problems that lead up to the preceding depression. The fact is that there is and will always be a business cycle, but it is our job to regulate and control this cycle, in order to avoid another national economic catastrophe.It helps to look at the causes of the Great Depression, in order to understand it and to figure out a cure. There is not one single cause, but a plethora of actions and economic events that brought about this economic recession. The Federal Reserve Board was created in 1913 (Carlstrom 2). This board was created with the purpose of defending the country against bank panics and depressions. Many believe...

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