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Great Depression- from Classical to Keynesian Macroeconomics

In: Business and Management

Submitted By rashika
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FROM CLASSICAL TO KENYESSIAN ECONOMICS
Great Depression
In the 1930s, American capitalism practically stopped working.For more than a decade, from 1929 to 1940, America's free-market economy failed to operate at a level that allowed most Americans to attain economic success. The depth economic collapse and social disarray that mired America then was unprecedented. * By 1933, the country's GNP had fallen to barely half its 1929 level12. * Industrial production fell by more than half, and construction of new industrial plants fell by more than 90%. Production of automobiles dropped by two-thirds; steel plants operated at 12% of capacity. * More than 13 million Americans lost their jobs. Of those, 62% found themselves out of work for longer than a year; 44% longer than two years; 24% longer than three years; and 11% longer than four years. Unemployment peaked at a staggering 24.1% in 1933. * The financial meltdown initiated by Wall Street's Great Crash of 1929 caused billions of dollars in assets to vanish into thin air. Wealthy Americans—who owned almost all the nation's stocks at the time—were walloped by an 80% decline in the value of the stock market. * Even more troubling to the entire population were rampant bank failures—between 1929 and 1933, two out of every five banks in America collapsed, causing more than $7 billion of their customers' hard-earned money to evaporate.
Factors responsible
The stock market crash of October of 1929. * The decline in the value of stocks made many people poorer (the wealth effect). * The decline in stock prices affected people’s expectations, making them much more pessimistic about the future. * When consumers are pessimistic, they are more likely to save their income rather than spend it. And when businesses become pessimistic, they are less likely to buy new capital goods. Aggregate...

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