Comparison of the Great Depression and the Great Recession

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In my essay, I will briefly describe,compare and contrast the course of The Great Depression and The Great Recession in the United States , and try to find analogies in the causes and policy responses within a framework of Business Cycle theories. The Great Depression The decade prior to the 1930's, the US was in the time of great economic boom known as “The Roaring Twenties”. The national income risen by 20%. However the growth was not distributed equally amongst Americans. Between 1920 and 1929, the disposable income of the population rose 9%, while the top 1% enjoyed a massive 75% increase.(global research, 2011) This disparity caused a mismatch between demand and supply, and thus there was an oversupply of goods, as the middle and lower class weren’t able to afford more, and the upper class were satisfied by spending a relatively small proportions of their income. The economy and peoples confidence in it became strongly reliant on three major things: luxury goods, credit sales and investment. At the same time the stock market was at it all time high with the prices of stock rising 40% between May 1928 and September 1929. This encouraged many people to invest their saving in the stock and motivated banks to loan money to their clients, so they could buy stocks on margin. Rampant speculation became a common practice and caused the stock prices to reach incredibly, almost illogically high prices. This stock bubble burst on October 21st 1929, when prices begun to fall rapidly, the crash was self-perpetuating since, the investors tried to get rid of their shares, putting downward pressure on the price. The giant loss of confidence soon spread all over the economy, causing drop in spending and subsequently drop in the industrial production, job losses and defaults on interest payments. To illustrate the scope of the depression, I will point out some of the
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