Great Depression K1
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Transcript of Great Depression K1
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Group K1
Learning's from The GreatDepression
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The Great Depression
Worldwide economic downturn that began in
1929 and lasted until about 1939.
The Great Depression originated in the UnitedStates, it resulted in drastic declines in output,
severe unemployment, and acute deflation in
almost every country of the globe.
Unemployment rose to 25% in US and 33% in
other countries.
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Lesson 1
Small fiscal expansion has only
small effects
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Fiscal expansion was not sustained
Difference in fiscal policy of fed & state/ localgovernments
Confidence Restoration
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Lesson 2
Monetary Expansion helps evenwhen
interest rates arenear zero byaffecting expectations
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US was on Gold Standard in 1929
1933, Roosevelt suspended the Gold Standard
Dollar depreciated substantially
Reverted to Gold at new higher price , hence goldinflows into US Treasury
Money Supply increased by 17% per yr from 1933to 1936
Replaced Deflation expectations with PriceStability
Real interest rates plunged
Interest sensitive consumer spending rose
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The Great Depression
Lesson3
Bewareof cutting back onstimulus
too soon
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Fiscal deficit rose by 1 % of GDP due to bonuses
given to WWI veterans
Real GDP increased 11% & 13% in 34 & 36 resp.
Unemployment fell by 10% points but was stillabove 15%
1937, both Fiscal policy & Monetary policy was
made contractionary
As a result, GDP rose by only 5 % in 1937 & then
fell by 3 % in 1938 ; Unemployment rose to 19%
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Lesso
n4
Financial Recovery & Real Recovery
go hand inhand
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Roosevelt ordered shutting of banks till the books
were checked
Increased money supply by temporary suspension
of Gold Standard
Help for the distressed home owners & farmers Short-term effects on financial markets : Real
stock prices rose over 40% ; commodity prices
soared & interest rates shrank
Strengthening real economy improved health offinancial system
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Lesson5
Worldwideexpansionary policy
shares theburden& benefits ofrecovery
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Going off the Gold Standard increased money
supply which lowered world interest rates
More the countries worldwide move towards
monetary & fiscal expansion, the faster the end to
recessionary times
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Lesson6
TheProtectionist Temptation
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The adoption of restrictive trade policies wasdestructive and counterproductive
Fiscal
Stimulus v/s Monetary
Stimulus
Monetary stimulus involves the manipulation ofthe available money supply within the economy.
Fiscal Stimulus on the other hand means
"Increased Government Spending" inInfrastructure etc (thereby creating more jobs )and "Higher Tax Cuts" (thereby increasing thepurchasing power of people
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The Great Depression
2009 V/s 1930
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2009 Recession V/s Great Depression
Economic Recession (2009)
Unemployment Rate - 8.1%
Real GDP fell by 2% from
peak Collapse of housing prices &
stock prices ; Consumer savingrates rose
Derivatives caused credits to
dry up Europe, Export economies like
China, Taiwan & South Korea
Great Depression (1930s)
Unemployment Rate - 25%
Real GDP fell over 25%
from peak
Decline in Asset prices &
fall on BFSIs ; Collapse of
Stock prices ; Consumers
stopped spending Worldwide nature of decline
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The Great Depression
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Q & A
The Great Depression