I try to learn more in depth about topics that interest me. I was reading about the Great Depression, but it is so hard to understand for me what exactly cause it, as I read it, it feels like a mix of fancy words that don’t tell me much (likely due to my lack of knowledge and english not being my 1st language). So, could anyone explain me in simple words what exactly cause the Great Depression?
In: 292
It’s very simple: One day your income drops in half. How do you react? Well, if you’re anything like a normal person, you cut back on spending. You economize, skip non-essential purchases, and delay essential ones. For one person, that’s a perfectly sensible thing to do.
But what happens when **EVERYONE’S** income drops in half? Now everyone is cutting back on spending, skipping non-essential purchases, and delaying essential ones. The result? Businesses make less money, and they have to either cut staff, cut wages, or go bust. This causes more people to respond by economizing, and the next thing you know, the entire non-essential economy has more or less ground to a halt.
That’s what the Great Depression was. Everyone is broke at once because everyone stopped spending money. If you understand nothing else about economics, drill this into your head: *Economies are reciprocal*. My expenses are my income, and vice-versa.
No in particular, the consensus about the Great Depression was that it was made far worse by the Federal Reserve, who responded to the fall in spending by tightening credit, which exacerbated the crisis, making it harder for people who wanted to borrow money to spend it, and thus crank up the economic engine again.
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