The Great Depression was a result of many factors:
(i) Conditions created by war: There was an immense industrial expansion due to the increased demand of goods supplied to the army, during the ** of the First World War. After the war, the demand for these goods suddenly dropped and so, there was no demand in many industries. There was also a large fall in the agricultural prices due to reduced demand.
(ii) Over production in agriculture Agricultural over production was another major factor responsible for the depression. This was made worse by falling agricultural .prices. As prices slumped and agricultural incomes declined, the farmers tried to increase the production and bring a larger volume of produce to the market to maintain their overall income. This worsened the situation by pushing down the prices of farm produce further.
(iii) Shortage of loans In the mid-1920s, many countries financed their investments through loans from the USA. While it was often very easy to raise loans in the USA during the **, lenders in the USA panicked at the first sign of trouble. Countries that depend crucially on US loans, now faced an acute crisis.
(iv) Multiple effect With the fall in prices and the prospect of a depression i.e. banks in the USA slashed domestic lending and some stopped bank loans, thousands of banks went bankrupt and were forced to close down. Factories closed, leading to unemployment, which further aggravated the crises. The US banking system collapsed.
(v) Large-scale unemployment Farm could not sell their harvests, businesses collapsed. As a result, large scale unemployment occurred.
