Q.8:- Explain the causes of the Great Depression.
(i)Conditions Created by War There was an immense industrial expansion in view of the increased demand of goods supplied to the army during the period of the First World War. After the war, the demand for these goods suddenly dropped and so there was no demand in many industries. There was also a large fall in the agricultural prices due to reduced demand.
(ii) Overproduction in Agriculture Agricultural overproduction was another major factor responsible for the depression. This was made worse by falling agricultural prices. As prices slumped and agricultural incomes declined, the farmers tried to increase the production and bring a larger volume of produce to the market to- maintain their overall income. This worsened the situation by pushing down the prices of farm produce further. Various goods rotted in the markets because of lack of buyers.
(iii) Shortage of Loans In the mid-1920’s many countries financed their investments through loans from the USA. While it was often very easy to raise loans in the USA during the boom period, the USA overseas lenders panicked at the first sign of trouble.
(iv) Multiple Effects With the fall in prices and the prospect of a depression, USA banks slashed domestic lending and stopped bank loans. Thousands of banks went bankrupt and were forced to close down. Factories closed, leading to unemployment of hundreds of people were rendered jobless, which further aggravated the crises.