If every country is in some sort of recession, shouldn’t the economy adjust accordingly as opposed to falling even more?
In: 53
There are different kinds of recession. The Great Depression was a “demand-led recession”.
What that means is that overall, people were buying less stuff (for various complicated reasons). When people stopped buying stuff, businesses had less business, so they stopped hiring people. Since it was harder to get and keep jobs, people bought even less stuff, and so on in a vicious spiral.
The economy couldn’t properly adjust – when it was in full swing, people might have *wanted* to buy stuff, but they had no spare money, since there were not enough jobs to go around. And businesses might have *wanted* to hire people, but nobody was buying their stuff.
In the end, World War 2 came along and broke the cycle. Governments stepped in and said “we need to buy lots of stuff, to fight a war with”. Then businesses could hire people to make the stuff that the government was buying, so soon there was no trouble getting a job, so even businesses that weren’t selling to the government could afford to start making stuff and hiring people again.
Latest Answers