Did you know classical economics struggled during the Great Depression?
Causes of the Great Depression
Did you know classical economics struggled during the Great Depression?
Imagine you're a farmer in the 1930s, struggling to sell your crops because people can't afford to buy them. Your income plummets as prices drop and demand falls.
In the 1930s, a farmer's income dropped because people had less money to spend. This is called a deflationary spiral, where falling prices lead to less spending and more economic hardship.
Example
If a farmer sells wheat for 5 per bushel but prices drop to 3, they earn less money per bushel sold.
Remember this
Classical economics failed during the Great Depression because it couldn't effectively address deflationary spirals and falling demand.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
Related concepts
Economics
Keynesian economics emphasizes aggregate demand as a driver of employment
New Keynesian economics
Ever wondered why a small spending boost can lead to a big economic boom?
The General Theory of Employment, Interest and Money
Ever wonder why holding cash feels safer than investing?
Paradox of thrift
Paradox of thrift: individual saving decreases aggregate demand and gross output
Keynesian economics
$1 of government spending generates more than $1 of GDP
Wall Street crash of 1929
Wall Street crash of 1929 triggered the Great Depression
Educational content, not financial advice.
Swipe through 100 ML concepts daily
Open Pocket Polymath