Cause Of The Great Depression

Causes:

1. The ‘Roaring twenties’ was the time of 1920-1929 when USA’s total wealth nearly doubled as a result of rapid expansion of US economy. The time was a flourishing era for the US stock market which centred on New York Stock Exchange. During this time, people from high class millionaires to lower class cook and janitors focussed heavily on investing their savings into stocks. This resulted in rapid expansion of stock market which reached its peak in 1929.

2. By that time the production had already declined and unemployment had risen, so the stocks were priced way higher than their actual value. The agricultural sector was suffering from drought and falling food prices. Additionally, the wages were low and consumer debt was rising.

It was sparked by an oil shortage. The OPEC (Organization of petroleum exporting countries) declared an oil embargo upon the supporters of Israel-western nations. The recession began immediately post this. The price of oil nearly doubled during 1973- initial months of 1974. As oil is involved in production of many goods like plastics, gasoline and many others, this spike in oil price increased the price of most consumer products. The wages of consumer failed to keep up with the pace hence inflation rose significantly. Consequently, inflation and recession both occurred

Inflation: The inflation rate which was 7.4% (3rd Qtr. of 1973) rose to 9.3% (2nd Qtr. of 1975). This coupled with high unemployment proved disastrous for the economy of USA.

3. Recession of 2001: This recession was one of the decline in economic activity which mainly occurred in developed countries. The economy contracted by 1.1% in first quarter, improved by 2.1 % in second quarter then again fell by 1.3% in third quarter. The recovery started in the fourth quarter. The recession of 2001 USA lasted for about 8 months starting from March 2001 and ended in November 2001. Unemployment had reached about 5.1% in Dec 2001. Employers waited to layoff the workers until the orders were strong enough.

Causes: The cause of this recession was Y2K. Many users (companies and consumers) bought new computers to make sure their softwares were Y2K compliant. The earlier operating code of computers from 1900 had only 2 digits to specify year (for e.g. 99 for 1999). So there was a need to change operating codes in the programming language. As a results, stock prices of many high-tech companies began to rise. Investor began to put their money in any high-tech company irrespective of whether they were making profits or not. It became apparent in Jan 2000 that computer orders would decline. Companies had bought all the equipment that they needed. An average computer had a life of about 2 years. Resultantly, the stock market