MACRO ASSIGNMENT – 24/6/13
Section 3 – Group No. 5
The relation between Macroeconomics and the Great Depression The Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in 1930 and lasted until the late 1930s or middle 1940s.It was the longest, most widespread, and deepest depression of the 20th century. The popular belief is that the Great Depression was caused by the 1929 crash of the stock market. The specific economic events that took place during the Great Depression are a deflation in asset and commodity prices, dramatic drops in demand and credit, and disruption of trade, ultimately resulting in widespread unemployment and hence poverty. Now we will see the macroeconomics involved in this event.
Macroeconomics and the Great Depression
The causes which led to great depression can be related to macroeconomics Stock market crash and financial panic
The Wall Street Crash of 1929, also known as Black Tuesday and the Stock Market Crash of 1929, began in late October 1929 and was the most devastating stock market crash in the history of the United States, when taking into consideration the full extent and duration of its fallout. The crash signalled the beginning of the 10-year Great Depression that affected all Western industrialized countries and did not end in the United States until the onset of American mobilization for World War II at the end of 1941. The market had been on a nine-year run that saw the Dow Jones Industrial Average increase in value tenfold, peaking at 381.17 on September 3, 1929.Shortly before the crash, economist Irving Fisher famously proclaimed, "Stock prices have reached what looks like a permanently high plateau." The optimism and financial gains of the great bull market were shaken on September 18, 1929, when share prices on the New York Stock Exchange (NYSE) abruptly fell. On September 20, the London Stock Exchange (LSE) officially crashed . The LSE's crash greatly weakened the optimism of American investment in markets overseas. In the days leading up to the crash, the market was severely unstable. Periods of selling and high volumes of trading were interspersed with brief periods of rising prices and recovery. On October 24 ("Black Thursday"), the market lost 11% of its value at the opening bell on very heavy trading. On October 28, "Black Monday", more investors decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38.33 points, or 13%.The next day, "Black Tuesday", October 29, 1929, about 16 million shares were traded, and the Dow lost an additional 30 points, or 12%.The volume of stocks traded on October 29, 1929 was a record that was not broken for nearly 40 years. After a one-day recovery on October 30, where the Dow regained an additional 28.40 points, or 12%, to close at 258.47, the market continued to fall, arriving at an interim bottom on November 13, 1929, with the Dow closing at 198.60. The market then recovered for several months, starting on November 14, with the Dow gaining 18.59 points to close at 217.28, and reaching a secondary closing peak of 294.07 on April 17, 1930. Overproduction in Industry
The first three decades of the 20th century saw capital investment and economic output surge with electrification, mass production and the increasing motorization of transportation and farm machinery. The resultant rapid growth in productivity meant there was a lot of excess production capacity, with falling prices and numerous manufacturing plant closures. As a consequence, the work week fell slightly in the decade prior to the depression. The depression led to additional large numbers of plant closings. Overproduction in Agriculture
There was a drop in agricultural product prices through fertilizers, mechanization and improved seed. Farmers were forced off the...
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