Introduction
Inevitably, the topic of economics is the most astounding and effective one for the economies, as the main crux of an economy and economic factors are always be effective for their future growth and effectiveness. Economics is a core subject that associated with almost every walk of life, and it can be used for different purpose all over the world. Economics is a subject that specifically associated with the earning and consuming the money accordingly and effectively at the same time. The two broad types of economics, on which the entire broad definition and outlook would be depending, are effective for their future effectiveness and participation and known as Macroeconomics and Microeconomics (Bernanke, 1985).
Microeconomics is the part of economics that specifically detains and relates with the economy of the individuals, while macroeconomics is the part and field of economics that relates to the economy of a country or economy as a whole. Economic crisis and financial slumps are some of the major kinds of macroeconomics used for different purposes in all over the world. Economic crisis is a major part of the crisis that associated specifically with the economies in particular, and the topics that stride under the same are very specific and effective. Economic Crisis most of the times lead to Depressions and depression leads to ineffectiveness for the economies in different parts of the world. However, after every economic crisis and depression, there were numerous lessons that will be learned by the learners accordingly Bernstein, 1987).
The main crux of this paper associated with one of the most important topics of economics and management, known as economic crisis and depressions. It is required to analyze the cause and effects relationship of the Great Depression of 1930s, and the policies that have been taken into account to overcome on the issue of Great Depression in an effective manner.
Analysis & Findings
There is a sign of stigma that there is no definition related to economic downturn and economic crisis is there. Economic crisis that sometimes referred as economic slump or financial crisis is a type of crisis or problem associated with an economy in particular. As per the analysis and qualification of the London School of Business and Finance (LSBF), economic crisis is the situation in which an economy no matter developed, under developed or developing will start to lose a large part of their financial assets is known as the time of economic crisis. This particular situation will not be effective for the companies operating in any part of the world particularly. Economic crisis that will be transformed into some severe economic crisis and problems for the economies are known as recession and Depression
Most of the times, the rate of inflation would increase or decreased during depressions and bring economic irregularities and ineffectiveness in their network heavily which will not be effective in their future consequences of the economies. It has been consensus during the current economic crisis that rate and level of economic depression had increased heavily that also increased the level of unemployment resultantly. The depression of 1930 has been referred as the most severe economic crisis even envisaged by an economy during a time frame (Kindleberger, 1986).
The Great Depression was nominated as a severe economic crisis or depression in the entire world preceding World War II in particular. The pure timings of the Great Depression varied across the nations, but in most of the countries it started in the financial year 1930 and remained till the end of 1940. The Great Depression was known as the deepest, severe and most widely spread depressions initiated in the 20th century. It was later on used as a benchmark to analyze the level of severity and intensity of the economic crisis related to an economy. The crisis or depression was originated in the United States (US), after the fall in the stock prices and market, and inclined the level of stock market crashes in different parts of the world.
The Great Depression of the United States had devastating effects over the rich and poor countries of the world. Tax Revenue, Personal Income, Profits and Dropped in the prices while the initiations of the International Trade are some of the major examples of a Depression that was originally applied practically on the Stock Market Crash of the United States. The international trade was plunged by of 50%, while it was the same year in which the rate of unemployment was on the highest level, showing an increment of 25% particularly in the United States, while in most of the countries; the unemployment rate was as higher as 33% (Kindleberger, 1986).
Cities in every part of the world faced a tough and ineffective situation from the growth based viewpoint and it was hit really hard especially to the heavy industries like construction industry, farming industry and others. Before leaping over the analysis of the policies that have been taken into account by the Government and the Central Bank of the United States to overcome on the challenges of the economic downturn, it is important to describe the basic causes behind the initiation of the Great Depression that engulfed the entire world in their fatal claws to emerged as the largest economic slumps of the world in the History. The Great Depression of the economic crisis also known as the most severe and deadliest crisis ever envisaged by the largest economy of the world (The United States).
Cause of the Great Depression
Though, there can be numerous reasons behind that severe economic crisis of the 1930 that associated with the name of Great Depression, however most of the economists of the world criticized on five different causes due to which the severity of the Great Depression increased heavily in the entire region, and then reached to every single corner of the world.
Stock Market Crash of 1929
May of the economists believe that the crash of the Stock Market occurred in the month of October 1929 is one of the major reasons behind the Great Depression. After two months of time period of the original market crash, stock holders of the market had lost more than $ 40 billion from the market. After that Great Depression, the revival of the stock market of the country was very difficult and ineffective, and it required high amount of time to overcome on this American crisis (Kindleberger, 1986)
Banking Failure
Banks and financial institutions are the heart of an economy, and no economy can grow effectively and substantially without the effective operations of the banks particularly. The developed and high power economies of the world always required their banking sector to flourish their growth in the market, because any growth in this particular sector has a large effect over the financial and strategic position of the economy in particular. Economies like the United States, United Kingdom, Germany and others are still empowering their banks and financial institutions to bring something new and extra for the economies in all over the world, and it will be effective for their future as well. The great Depression was also known and termed as the banking crisis, because nearly 9,000 banks went bankrupt at that time period of the economy that created numerous problems for them in their future consequences. The deposit of the banks and its customers were not insured that increased the level of fear among the consumers by putting or parking their money in the stocks of the economy. After the Great Depression, the economic crisis of the year 2008, also known as the banking crisis, in which the levels of confidence of the consumers have increased heavily in the time period that created problems for them.
Reduction in Purchasing Across the Board
Buying-selling, purchasing and empowering are some of the major aspects that are associated with the long run economic growth of an economy, as those economies which don’t have such inclinations towards enhancement in the purchasing of the across board would not be effective. With the stock market crash of the 1930 and prevent the future economic woes, many of the companies and individuals stopped purchasing different items from the countries or completely demolished the idea of export business. This particular thing decreased the level of item produced or output that will also increase the level of unemployment heavily. It was the same period in which the rate of unemployment of the United States rose to a level of 25%, the highest in their long time history (Kindleberger, 1986). Purchasing and buying/selling are important for the circulation of money within an economy, and those economies which are increasing their purchasing power accordingly and effectively at the same time.
American Economic Policy with Europe
Economic Policies always played a vital role for the economies and the organizations in different parts of the world. Policy Making and Implementation are some of the major points that discussed in the subject of macroeconomics that associated with the sheer growth of the economy (Kindleberger, 1986). The economic policy of the United States is very important and significant for the long term economic growth and effectiveness of the economies particularly. After the falling of the economic consequences, the government of the United States emerged with a policy to save only the American Companies with the Bailout Packages, and totally ignored other countries which were operating in the region. They also charged a high tax on the imports that will lead to weakening the economic aspects of the countries particularly.
Economic Cycle
According to the major economists of the world, every country and economy will envisage with a heavy economy cycle that will not be effective for their economic growth and effectiveness in particular. In the economy cycle, many of the companies and economies of the world went down or having a stepper graph. The theory of Capitalism were totally breached at that time period, wherein there was no credit policy associated with the economy, and only economy cycle is the one that increased the level of unemployment as well as inefficiency of the countries across the globe.
After describing the basic problems and reasons behind the Great Depression of 1930, it is also effective to analyze the policies that have been taken by the government of the United States to overcome on these challenges accordingly.
Policies Analysis
The prevention of banks and financial institutions are extremely vital and important for the sake of an economy, and the policies to strengthen them are extremely important for their long term economic and financial growth and effectiveness. United States economy is one of those economies of the world that have a heavy resilience over the economy of the country, and they always required to overcome on the challenges and inefficiency of the companies. There were number of policies that were initiated specifically by the United States to overcome on the challenges and the severities of the policies were very high and ineffective (Kindleberger, 1986).
Strengthen the Function of the Banks
Every single person who are in the supreme position in the United States always try to strengthen their financial sector, because they have an idea that without this particular sector they are nothing. The current practice is continuing in the current scenario as well. New York Stock Exchange (NYSE), NASDAQ and others are some of the important and largest stock exchanges of the United States which are influencing the entire world effectively (Navarro, 2012). The government of that time made the financial sector viable and pledged all of their assets completely. The pledging includes the operational and non operation assets of the banks, along with the banking deposits of the personnel, which will decrease the level of ineffectiveness of the banking cycle of the company. The depositors of the country at that time did a perfect job as far as overcoming on the problems of confidence shaking, to get their morale high again for purchasing and investment purpose.
Keynes Model Application
According to Keynes, “Wars are effective for the economies, as in this situation, the people and organizations would start consuming their money in a more effective and organized manner” The same model of Keynes can be applied over the effectiveness of different economies of the world. The model of Keynes is known as the most important model that used by the economies for their effectiveness. The government of the United States analyzed the model of Keynes, and provided their consumers a timing and effectiveness to overcome on these challenges and increased the level of money supply within the country which has a direct linkage with the financial and economic position of the economies. The government lifted up the sanctions applied on its imports, and start exporting and importing from Europe that increased the level of prosperity in the US region, as well as effective in the European region as well. The model is still applicable and effective in the current economic scenario as well, wherein many economies of the world are empowering their different departments in an effective manner with sheer level of efficacy.
Decreasing the Level of Interest rate
The provision and prevailing of interest rate is extremely important and significant for the sake of an economy, as it has a direct impact with the economic prosperity and position of an economy. Low amount of interest rate always be effective for the economies of the world, and United States is one of those economies of the world that always decreased its interest rate to overcome on the challenges accordingly. The United States also decrease the level of interest rate from the banks in order to increase the level of borrowings in a manner and effectiveness, in order to appreciate their earnings in an effective manner. The country or the government did the same for their long term productivity and effectiveness, and especially for the increment of the private sector of that time and increasing the money supply of the country (Navarro, 2012).
This particular thing not only increased the production capacity of the big companies, but also enhanced the level of employment within the country, which is an effective sign for their future consequences and effectiveness.
Conclusion
Crisis regardless in which face it is, it will always be ineffective for the economies and the companies. Banking and financial crisis are some of the major types of crisis that are not effective for the economies in all over the world, and they required special consideration for the analysis. The Great Depression those also known as a major part of the economic crisis of the United States (US) were not effective for the countries all over the world. It is requiring in this assignment to overcome on the issues and challenges of the Great Depression that was initiated in the year 1930. It is a term paper that analyzes the causes and policies of the United States government to overcome on the crisis. This entire analysis reveals that it there were five different reasons due to which the problem of crisis increased in the country, however the policies of the country was best to overcome on it.
References
Bernanke, B. (1985). Employment, Hours, and Earnings in the Depression. Cambridge, Mass.: National Bureau of Economic Research.
Bernstein, M. (1987). The Great Depression. Cambridge [Cambridgeshire]: Cambridge University Press.
Kindleberger, C. (1986). The world in depression, 1929-1939. Berkeley: University of California Press.
Navarro, A. (2012). Global capitalist crisis and the second great Depression. Lanham: Lexington Books.
