Explain the causes of the Great Depression.

Solution: The Great Depression was a result of many factors. Some of them are

1. Agriculture overproduction was a major problem. As a result, agricultural prices fell. As prices fell, so did agricultural incomes. This increased the volume of goods in the market. The situation got worsened in the market. Prices fell further. Farm produce began to rot due to the lack of buyers.
2. Prosperity in the USA during the 1920s created a cycle of higher employment and incomes. It led to a rise in consumption and demand. More investment and more employment created tendencies of speculation, which led to the Great Depression of 1929 up to the mid-1930s. The stock market crashed in 1929. It created panic among investors and depositors, who stopped investing and depositing. As a result, it created a cycle of depreciation.
3. The withdrawal of US loans affected the rest of the world in many different ways. In Europe, it led to the failure of the major banks and the collapse of major currencies such as the British pound sterling. Some of the banks closed down when people withdrew all their assets, leaving them unable to invest. Some banks called back loans taken from them at the same dollar rate in spite of the falling value of the dollar.