Great Depression
Topic: Economic Growth Theories and Business Cycles · NCERT: Class 12, Ch 1 "Introduction (Macroeconomics)"
Meaning
The Great Depression was a severe worldwide slump that began in 1929 and was worst in 1929-33. It hit Europe, North America and much of the world. It led Keynes to write his General Theory (1936), which explained lasting unemployment through deficient aggregate demand, meaning too little total spending. This is seen as the birth of macroeconomics. Its causes included:
- the Wall Street crash of October 1929;
- about 9,000 US bank failures between 1930 and 1933;
- a fall of about a third in the money stock;
- the gold standard, which spread deflation from country to country;
- the Smoot-Hawley tariffs of 1930.
Example
In the USA, unemployment rose from 3% to 25% between 1929 and 1933. Real GDP fell by roughly a quarter. NCERT's "about 33 per cent" is closer to the fall in nominal output. In India, farm prices roughly halved between 1929 and 1931. Indebted peasants were forced to sell their gold, and this "distress gold" was exported.
Don't confuse with
- Recession: a recession is a significant decline lasting months. A depression is much deeper and longer, for example output falling by more than 10% or a downturn lasting several years.