The great economic depression and the fiscal policy
Journal
Journal of economics
Date Issued
2016
Author(s)
Gaber Naumoska, Vasilka
Gaber, Stevan
Abstract
The Great Depression is known as one of the biggest crises in economic history
which caused serious economic consequences expressed through increased
unemployment, high rates of deflation, bank panic, banking crisis and bankruptcies of
many companies and households. The fascination of many economists from this
crisis was the main cause of the preparation of this work that aims to capture the
overall crisis and to see different views of numerous economists about the reasons
that led to the appearance of the same, but also the solutions to overcome it. The
paper reviews the different posts of economists, beginning with those who felt that the
crisis was caused by monetary factors (tight monetary policy, the gold standard,
vulnerable banking system), other authors who considered that the reasons lie in the
real sector, and third in the insufficient aggregate demand. Furthermore, the paper
examines the Keynesian theory and her attempt to explain and overcome the crises
and their views on the increased activity of the state in periods of low economic
growth and high unemployment. Keynes succeeded by his revolutionary work to
refute all previous views that the market alone manages to declare balance in the
economy and that the role of the state should be minimized. Keynes's focus was on
capital investments, i.e. the execution of public works which will generate new jobs
that can influence to boost consumption. That kind of capital investment in terms of
depression should be the main substitute for private investment. The last section
elaborates the fiscal measures incorporated in the so-called New Deal of President
Roosevelt which were represented through substantial increase in public spending,
but such an inevitable march was preceded by the abolition of numerous tax
exemptions.
which caused serious economic consequences expressed through increased
unemployment, high rates of deflation, bank panic, banking crisis and bankruptcies of
many companies and households. The fascination of many economists from this
crisis was the main cause of the preparation of this work that aims to capture the
overall crisis and to see different views of numerous economists about the reasons
that led to the appearance of the same, but also the solutions to overcome it. The
paper reviews the different posts of economists, beginning with those who felt that the
crisis was caused by monetary factors (tight monetary policy, the gold standard,
vulnerable banking system), other authors who considered that the reasons lie in the
real sector, and third in the insufficient aggregate demand. Furthermore, the paper
examines the Keynesian theory and her attempt to explain and overcome the crises
and their views on the increased activity of the state in periods of low economic
growth and high unemployment. Keynes succeeded by his revolutionary work to
refute all previous views that the market alone manages to declare balance in the
economy and that the role of the state should be minimized. Keynes's focus was on
capital investments, i.e. the execution of public works which will generate new jobs
that can influence to boost consumption. That kind of capital investment in terms of
depression should be the main substitute for private investment. The last section
elaborates the fiscal measures incorporated in the so-called New Deal of President
Roosevelt which were represented through substantial increase in public spending,
but such an inevitable march was preceded by the abolition of numerous tax
exemptions.
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