Understanding the Great Depression, Causes and Measures Taken


Learn about the causes of the Great Depression, including the stock market crash, bank failures, and drought, and the measures taken by the United States government to address the severe economic downturn, including the New Deal, expansionary monetary policy, and international cooperation.

The Great Depression was a severe and prolonged economic downturn that lasted from 1929 to 1939. It was the longest, deepest, and most widespread depression of the 20th century, affecting the global economy. The depression began in the United States following the stock market crash in October 1929 and quickly spread to other countries. It was characterized by high unemployment rates, low industrial production, and widespread poverty, leading to social and political upheaval. The Great Depression ended with the onset of World War II, which created massive government spending and economic growth.

The Causes of the Great Depression

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Massive bankruptcy of banks

The massive bankruptcy of banks is a phenomenon that can occur during an economic crisis or depression, as was the case during the Great Depression in the 1930s. The failure of banks during this period was due to a combination of factors, including over-speculation in the stock market, a lack of regulation, and an unstable banking system.

Many banks had invested heavily in the stock market during the 1920s, and when the market crashed in 1929, they suffered significant losses. This, combined with the fact that many banks had made risky loans to individuals and businesses that were unable to repay them, led to a wave of bank failures.

As banks failed, people rushed to withdraw their savings, which further depleted the banks’ reserves and led to even more failures. This created a vicious cycle of bank failures, which had a devastating impact on the economy, leading to widespread unemployment, poverty, and social unrest.


To address this problem, the US government established the Federal Deposit Insurance Corporation (FDIC) in 1933, which insured bank deposits up to a certain amount. This helped to restore public confidence in the banking system and prevent further bank failures. Since then, banking regulations have been put in place to ensure the stability of the financial system and prevent a repeat of the Great Depression.

Stoppage of business

During the Great Depression of the 1930s, many businesses were forced to halt their operations due to the severe economic downturn. The depression began with the stock market crash in October 1929, which led to a decline in consumer spending and a reduction in industrial production. This, in turn, caused many businesses to experience financial difficulties and the need to reduce production or shut down operations.

The Causes of the Great Depression

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As businesses struggled to stay afloat, unemployment rates skyrocketed, leading to a decline in consumer demand and a further reduction in industrial production. Many banks also failed, leading to a credit crunch and a shortage of available funds for businesses to borrow and invest.

The stoppage of business during the Great Depression had significant economic and social consequences. It led to widespread job losses, reduced economic activity, and financial instability. The federal government responded by implementing a range of policies to stimulate the economy, including the New Deal programs, which provided jobs and financial relief to millions of Americans.

Despite these efforts, the Great Depression persisted throughout the 1930s and was only brought to an end by the massive government spending and economic growth that resulted from World War II. The stoppage of business during the Great Depression highlights the importance of a stable and resilient economic system that can withstand economic shocks and prevent the spread of financial instability.

Bad economic policy of the government

During the Great Depression, many economists and historians have criticized the bad economic policies of the government for exacerbating the severity and duration of the economic crisis. The government’s response to the depression was initially slow and inadequate, which contributed to the worsening of the economic conditions.

One of the government’s biggest mistakes during the Great Depression was its failure to effectively regulate the banking system. The banking system was unstable, with many banks engaging in risky practices, such as speculative investing and lending practices that were not sustainable. When the stock market crashed in 1929, many banks failed, leading to a wave of bank closures and financial panic. The government’s response to this crisis was to allow many banks to fail, which exacerbated the economic downturn and led to a contraction in the money supply.


Another bad policy of the government during the Great Depression was its adherence to the gold standard. The gold standard restricted the government’s ability to stimulate the economy by printing more money and led to a deflationary spiral, where prices and wages fell, leading to a decline in demand and further economic contraction.

Furthermore, the government’s adoption of protectionist trade policies, such as the Smoot-Hawley Tariff Act of 1930, which imposed high tariffs on imports, led to retaliation from other countries and a decline in international trade, further worsening the economic conditions.

In conclusion, the bad economic policies of the government during the Great Depression contributed to the severity and duration of the economic crisis. It highlights the importance of effective government regulation of the banking system, flexible monetary policy, and the need for international cooperation in times of economic crises.

A drought of biblical proportions

During the Great Depression, a severe drought of biblical proportions occurred in the Great Plains region of the United States, which became known as the Dust Bowl. The drought, which began in the early 1930s, was caused by a combination of natural and human factors.

The natural factors included a lack of rainfall and high temperatures, which led to the drying out of the soil and the depletion of moisture in the atmosphere. The human factors included overgrazing, farming practices that exposed the soil to erosion, and the destruction of natural vegetation, which led to the loss of topsoil and the formation of dust storms.

The Causes of the Great Depression

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The dust storms were severe and often called “black blizzards.” They were so massive that they reached as far east as the Atlantic Ocean and carried topsoil from the Great Plains to other parts of the country. The dust storms caused significant damage to crops, property, and human health. Many people suffered from respiratory illnesses and “dust pneumonia,” a condition caused by breathing in fine dust particles.

The Dust Bowl had significant economic and social consequences. It caused widespread crop failures and forced many farmers to abandon their land and migrate to other parts of the country in search of work. The migration of people from the Dust Bowl to other parts of the country contributed to the spread of poverty and unemployment during the Great Depression.

To address the problem, the government implemented a range of policies, such as soil conservation programs and the establishment of the Civilian Conservation Corps, which provided jobs for unemployed young men and helped to restore the natural environment. These efforts helped to mitigate the effects of the Dust Bowl and prevent similar disasters in the future.

Measures against the Great Depression

During the Great Depression, the United States government implemented a range of measures to try to address the severe economic downturn and mitigate its effects on the population. These measures included:

  1. The New Deal: The New Deal was a series of programs and policies implemented by President Franklin D. Roosevelt’s administration to stimulate the economy and provide relief to those suffering from unemployment and poverty. The New Deal included a range of initiatives, such as public works projects, financial reforms, and social welfare programs.
  2. Expansionary Monetary Policy: The Federal Reserve, the central bank of the United States, implemented expansionary monetary policies, including lowering interest rates and increasing the money supply, to provide liquidity to the financial system and encourage borrowing and investment.
  3. Fiscal Policy: The government increased its spending on public works projects, such as highways, bridges, and dams, to create jobs and stimulate economic activity.
  4. Agricultural Policies: The government implemented policies to support farmers, including subsidies, price supports, and the establishment of the Agricultural Adjustment Administration to reduce surpluses and increase prices.
  5. International Cooperation: The United States worked with other countries to implement policies to stabilize the international financial system and promote economic growth, such as the Bretton Woods Agreement and the establishment of the International Monetary Fund.

These measures helped to mitigate the effects of the Great Depression and lay the groundwork for a period of economic growth and stability in the postwar period. However, some argue that the measures were insufficient and that the economy only fully recovered with the massive government spending and economic growth resulting from World War II.


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