Macroeconomics

Paper Summary:

In this article, the writer points out that the Great Depression was probably one of the most significant economic events of the 20th century. The writer notes that, through the implications it provoked and its global reverberations for almost a decade, the Great Depression stands alone as the largest economic downturn of last century. This essay starts with an analysis of the macroeconomic causes that justified the Great Depression and then looks into the applied policies in the 1930s. Further, the writer discusses the relevancy and implications of those policies for modern policy makers.

From the Paper:

"On the other hand, theoreticians argued that the debt-deflation correlation was not necessarily a cause for economic depression, but for acutely a case of wealth redistribution, with the financial wealth of the debtors being moved/redistributed to the creditors, without necessarily having a direct consequence on the general flow of the national economy."
"Nevertheless, Fisher's theory has come to be supported by some modern arguments in terms of risk - related debt costs. Indeed, such arguments point out towards the fact that the decline of the borrower's net value (in the sense of a decline in the value of his portfolio of assets) is bound to increase the risk that the creditor is being exposed to and, in this sense, it is also bound to increase the cost of lending for the borrower (higher risk needs to bring higher returns for the lender, which means a higher cost of capital for the borrower). Higher prices for borrowing would decrease the incentive to invest, because of more expensive sources of finance. Fewer investments would lead to a drop at macroeconomic levels."

Sample of Sources Used:

• Causes of the Great Depression. 2001-2006. On the Internet at http://www.learninghaven.com/articles/causes_of_the_great_depression.html. Last retrieved on October 13, 2006
• Ben S. Bernanke. August 1994. The Macroeconomics of the Great Depression: a Comparative Approach. Working Paper No. 4814. National Bureau of Economic Research. Page 23.
• Rothbard, Murray N. 1969. Economic Depressions: Their Cause and Cure. The Austrian Theory of the Trade Cycle compiled by Richard M. Ebeling. On the Internet at http://www.mises.org/tradcycl/econdepr.asp. Last retrieved on October 13, 2006
• Keynesian Model. 2000-2006. On the Internet at http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=Keynesian+model. Last retrieved on October 13, 2006
• Gusmorino, Paul Alexander. May 1996. Main Causes of the Great Depression. Gusmorino World. On the Internet at http://www.gusmorino.com/pag3/greatdepression/. Last retrieved on October 13, 2006

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