Explain the cause of the Great Depression.
The Great Depression was a result of many factors:
Agriculture over production was a major factor. As a result, agricultural prices fell. As prices fell and agricultural incomes declined, farmers tried to expand production. This increased the volume of goods in the market. The situation got worsened in the market. Prices fell down further. Farm produce began to rot due to the lack of buyers.
Prosperity in the USA during the 1920s created a cycle of higher employment and incomes. It led to rise in consumption and demands. More investment and more employment created tendencies of speculations which led to the Great Depression of 1929 upto the mid-1930s.
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.
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. 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 inspite of the falling value of dollar. It was worsened by British change in policy to value pound at the pre-war value.
The US attempt to protect its economy in the depression by doubling import duties also gave another severe blow to world trade which aggravated the Great Depression.