Great Depression

Definition

The Great Depression was a severe worldwide economic downturn that lasted from 1929 until the late 1930s, marked by widespread unemployment, significant declines in industrial production, and a collapse of financial institutions. This catastrophic event reshaped economies and societies globally, leading to drastic changes in government policies and economic theories.

5 Must Know Facts For Your Next Test

1. The Great Depression began with the stock market crash on October 29, 1929, known as Black Tuesday, which wiped out millions of investors.
2. Unemployment rates soared during the Great Depression, reaching about 25% in the United States at its peak.
3. The global nature of the Great Depression meant that countries worldwide experienced economic turmoil, not just the U.S., leading to widespread poverty and social unrest.
4. The Federal Reserve's monetary policies before and during the early years of the Great Depression are often criticized for exacerbating the economic decline rather than mitigating it.
5. The economic crisis led to significant changes in government intervention in the economy, paving the way for modern welfare states and new regulatory frameworks.

Review Questions

• How did the Stock Market Crash of 1929 contribute to the onset of the Great Depression?
  • The Stock Market Crash of 1929 acted as a catalyst for the Great Depression by instilling panic among investors and consumers. As stock prices plummeted, banks faced insolvency due to bad loans and lost deposits, leading to widespread bank failures. This loss of wealth diminished consumer spending and investment, further deepening economic decline and triggering a cycle of unemployment and reduced production that defined the Great Depression.
• What role did government intervention play in addressing the economic challenges during the Great Depression?
  • Government intervention became a key strategy for addressing the severe economic challenges of the Great Depression through initiatives like the New Deal. President Franklin D. Roosevelt implemented programs aimed at providing relief for the unemployed, stimulating economic recovery, and reforming financial systems. These measures marked a significant shift toward increased government involvement in economic affairs, changing public expectations regarding government responsibility for citizens' welfare.
• Evaluate the long-term impacts of the Great Depression on modern economic policy and banking systems.
  • The long-term impacts of the Great Depression fundamentally transformed modern economic policy and banking systems by emphasizing the need for regulation and safety nets. The crisis led to significant financial reforms, including the establishment of the Securities and Exchange Commission (SEC) to regulate stock markets and prevent future crashes. Additionally, it prompted the creation of social safety nets like Social Security, shaping public policy to focus on protecting citizens from economic hardship and ensuring a more stable financial system.

Related terms

Stock Market Crash of 1929: A major stock market crash that occurred in late October 1929, which is often cited as the beginning of the Great Depression, causing a loss of confidence in the economy.

New Deal: A series of programs and reforms implemented by President Franklin D. Roosevelt in response to the Great Depression, aimed at economic recovery and social reform.

Dust Bowl:

A severe drought during the 1930s that devastated agricultural production in the Great Plains, contributing to the hardships faced during the Great Depression.