Course

Great Depression

Instructor: Alex Tabarrok, George Mason University

This is " Understanding the Great Depression " from our Principles of Economics: Macroeconomics course. Imagine that we’re in the late 1920s in the United States.

This is "Understanding the Great Depression" from our Principles of Economics: Macroeconomics course.

Imagine that we’re in the late 1920s in the United States. Times are great. World War I is behind us and we’re in the early days of the “Golden Age of Hollywood.” Jazz music is blossoming. Automobiles are new and novel. As Art Deco style peaks, there’s glitz and glamour sprinkled across the country. What a time to be alive! If only it could stay so grand.

All of the opulence associated with the “Roaring Twenties” was bolstered by a booming economy, growing at nearly 3% per year. Since inflation clocked in at 0%, that growth was real. But in 1929, it went sour; the stock market crashed.

Investors did not fare well in the crash. Their loss of wealth led them to cut back on consumption and grow increasingly pessimistic about the economy. The air of pessimism sweeping America made bank depositors nervous. Remember: we’re talking about a pre-deposit insurance time. So what would you do if you thought your money might not be safe with the bank? You’d probably want it back in your own hands. That’s exactly how a lot of people felt at the beginning of the Great Depression.

You probably know what happened next: a run on the banks. Along with the Stock Market Crash of 1929, it’s one of the iconic moments of the early days of Great Depression. However, the Great Depression was an incredibly complex downturn in which the economy experienced a series of aggregate demand shocks.

In this video, we’ll examine the causes behind the Great Depression with the help of the aggregate demand-aggregate supply model. By the end, you’ll walk away with a better understanding of the many factors behind the Great Depression and how to apply the AD-AS model to a real-world scenario.

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