Crisis Of 1929 Preceded And Accelerated The Great Depression

Macroeconomic Essay
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The economic crisis of 1929 preceded and accelerated the Great Depression. The US economy rose rapidly in the 1920s including the stock prices that reached an all time high, which was followed by a fall in the Dow Jones industrial index in 1929, and the decreased further worsened during Black Monday and the next day. There were increased stock investments in the United States and the Dow Jones industrial index rose rapidly until the 1920s, but, speculation on Wall Street resulted to a speculative bubble that would continue to grow (Mankiw, 2016). The Fed raised interest rates to curb speculation in the stock market, but the market then declined followed by a fall in industrial production in the US , imports and agricultural prices as the price of raw materials also plummeted from the late 20s to 1933.
Deflation occurs when the supply of goods and services in an economy exceeds demand and there is a fall in prices throughout the economy that lasts for several periods. The national income deflator was $85 in 1931 and fell to $77 in 1932. Since there is lack of demand or excess supply when there is deflation this affects economic performance negatively. During the Great Depression this imbalance occurred due to insufficient demand, and then the stock market crash drastically reduced the spending capacity of families. Deflation affected businesses as the price gets lower faster, with businesses forced to cut the number of employees, which increased unemployment and there were fewer investments in capital goods.
The monetary situation worsened s there was reduced money supply where both the 1930 the money and bank deposits reduced by billion dollars. There were increased concerns about the stability of the dollar, and the US experienced fall in the gold stocks between 1931 and 1932. As pointed out at there was more attention on the United States as the main cause of the Great Depression, but the US mainly targeted with European counties and there was also a crisis in western European countries. The effects of the Great Depression were felt in the 1930 and the crisis worsened a because of the orthodox economic policies such as gold standard and budget balance used by nations. At the same time, the crisis was closely linked to the rise in interest rates by the Federal...