Factors contributed to causing the Great Depression
The stock market crash of 1929
There was speculation in the stock market which was not regulated at that time, a factor that led to the great depression. This made many Americans purchase stocks on credit a situation known as margin buying. The stock market crashed as a result of a decline in prices which slapped investors with a cold wake up call. The stock market crash was the beginning of the Great Depression. The stock market crash made people increase their liquidity preference which in turn made them to hoard money.
Industrialization is a major factor that contributed to the great depression. There was increased agricultural and manufacturing output, but the wages were not in pace for all consumers to purchase the produced goods. This led to an increase in inventories while agricultural income remained relatively low.
Lack of economic understanding by the Federal Reserve
Federal regulations on the US businesses contributed to the Great Depression. This is especially because taxes laws were made favorable to large corporations. Macroeconomic policies never existed, and there was the absence of fiscal and monetary policies. Laissez-faire and hands off government were the watchwords used by the leaders.
What cured the Great Depression?
The Great Depression ended when the Federal Government of the United States imposed rationing, recruited around 6 million defense workers who included African Americans and women, ran massive deficits in order to fight World War II and drafted 6 million soldiers. Deficit spending, inflating the supply of money and the new deal of the federal government also cured the Great Depression.
World War II also cured the Great Depression. The Great Depression ended in December 1941 at the same time when the World War II began. The economy had been expanding since 1938, just less than three years before the country’s entry into the Second World War and the economy stopped expanding in 1945 before the war ended. During the war, the economy of US was a huge arsenal which led to the deterioration of the consumers well being. However, after the war, a genuine prosperity returned in the economy for the first time since 1929 making the war a cure of the Great Depression.
How the Great Depression affected Hebert Hoover
Hebert Hoover was blamed for the Great Depression as he was not involved in the stock market issue. The depression affected him so much that he had to give much that he had to pull out his money from the stock market. He did not give government aids to the people for fear of inflating the budget of the Federal government and was forced to break off from the laissez-faire policy which was used to deal with depressions and recessions in the country. He was forced to spend more of the country’s income to help in economy rebound like the construction of the Hoover Dam which created an agency to help railroads, banks and other important businesses to stay put in business hence helping the economy.
What legislation was put into place to prevent another Great Depression?
Many government agencies and laws were put in place to prevent the occurrence of another Great Depression. The Federal Emergency Relief Administration was put in place for the purpose of wages on public works. The Tennessee Valley Authority was also another legislation aimed at making use of the river basins resources.
What ended the Great Depression?
Spending on the World War II ended the Great Depression in America. The new deal by Roosevelt also led to the recovery of the economy. He used reforms like National Industry Recovery, Agricultural Adjustment Act, Tennessee Valley Authority and Public works Administration which created jobs for the unemployed Americans.
Why were people heavily investing in the stock market during the late 1920s despite a weak American economy?
There was speculation in the stock market which was not regulated at that time. This made many Americans purchase stocks on credit hence making them to buy more stock. The stock would also rise by great leaps, fall or even rise higher and at the same time, the investors were still making money and this made them invest more in the stocks. The stocks in America were leading and many people thought it a smart move to invest all of their money in the leading stocks.
How have the attitudes of the Federal Reserve Board, President and our government in general, changed towards the stock market and American economy? Do they still maintain a laissez-faire view?
Their attitudes have changed towards the American economy and stock market. They implemented macro economic polices which included the monetary and fiscal policies to regulate the economy. They do not still hold to their laissez-faire view as this was a major contributor to the emergence of the Great Depression.