Depressions
You may have heard people referring to an economy as in “depression” and wondered what the term meant? This article looks at depressions and their symptoms, and how their effects impact upon people's lives. We'll also take a look at arguably the most famous depression, the Great Depression of 1929.
A depression is otherwise known as a recession, which impacts upon an economy in several ways. It can usually be felt through a slump in personal income, low confidence in investment opportunities such as stocks and shares, rising unemployment and an increase in the price of common goods and services.
The most famous depression of the century was known as the Great Depression. It originated in the United States and soon moved to Europe and other parts of the world. As a result, international trade and heavy industry was virtually crippled. Farming was another area hit hard when the prices of crops fell 60 percent. The lowest point of the Great Depression was in March 1933. Unemployment rates worldwide were at an all time high and those lucky enough to still bring home a wage or salary were taking home less. Finally in the mid to late 30's, economies started to improve, helped in part by the race to prepare for World War 2.
Depressions can happen at any stage in an economy's lifecycle and can continue for a number of years unchecked if governments do not intervene. Luckily, because of the severe impact depressions can have upon economies, governments try to counteract them by implementing two different types of policies.
A common fiscal policy awards tax cuts for businesses and working people, which helps to increase demand by making sure people have more money to spend. Governments will also attempt to create more jobs to lower the unemployment rate and will boost welfare payments for those that remain out of work.
Monetary policies involve controlling the amount of money available within an economy. Governments can lower federal interest rates and lower the amount that banks traditionally have to keep in reserve. This frees up the amount of money available for loans and encourages people to invest.
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Banking - Business Finances - Economics - Insurance - Investing
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