Cause and Effect of the Great Depression

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Economy: Cause and Effect of the Great Depression
Cause and effect are two correlated aspects of an event or occurrence. Whereas causes describe the events preceding an outcome, the effects refer to the events which follow the outcome that actually result from it. Causes and effects are thus intended to provide a connection between events or phenomena hence understanding them helps generate relevant solutions to particular problems. This essay presents a cause and effect analysis of the great economic depression of 1929-1939which went down in records as “the longest, deepest and most pervasive depression in American history”.
Before embarking on the cause and effect analysis of the great economic depression, it is important to consider briefly a background review. The great economic depression started after the crash of the New York stock market in the U.S in 1929 and spilt over to many parts of the world. Sooner than later; banks failed and stock values dropped significantly. Bank failure was a result of multiple factors including; loan defaulters, accounts closures by panicked customers, and declining stock values among others. Other activities and policies which worsened the situation consisted of those whose general effect was to reduce levels of demand. These include; adherence to the gold standard, monetary policy mistakes and implementation of the voluntary wage-and-price controls by the National Recovery Administration. Because of reduced demand, production declined hence led to increased unemployment levels.
The great depression having begun in the U.S, it spread so fast to Britain, Germany and other parts of the world because at that time, the U.S was the main creditor and financier of Europe during the post war period. The desperate measures by some nations such as imposition of quotas and tariffs with view to protect their domestic production had the effect of reducing the value of the international trade. However, the timing and severity of the great economic depression was not the same among the many affected countries. For instance, the depression was milder in Japan and Latin America compared to the U.S and Europe where it was particularly long and severe. In the next section, this essay outlines the causes of the great depression.
The great depression began in the U.S due to a decline in spending (i.e. decline in aggregate demand). This generated a decline in production because manufacturers realized as well as merchandisers realized that inventories were accumulating. The decline in aggregate demand in America was transmitted to other parts of the world as a result of adhering to the gold standard which will be discussed below. Different other country specific factors contributed to the economic downturn in respective countries.
The New York stock market crash in the U.S which occurred largely due to adoption of the tight monetary policy with view to limit speculati...