Recession and Economic tools: The Great Depression (Coursework Sample)

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Recession and economic tools
The Great Depression that occurred between 1929 and 1939 was the longest lasting and deepest economic downturn or recession that the Western industrialized world has ever witnessed. In the U.S., the Great Depression started once the stock market crashed in October 1929 as Wall Street was sent into panic and pandemonium, and millions of investors wiped out (Cole and Ohanian, 2001). The next few years saw investment and consumer spending drop, resulting to steep industrial output declines and soaring levels of unemployment with failing companies laying off workers. The Great Depression had reached depths of despair by 1933 with about 15 million Americans losing jobs and a collapsing banking sector. President Franklin D. Roosevelt implemented relief and reform actions that helped lessen the most awful effects of this economic crunch in the 1930s. However, the economy did not improve fully recover until after 1939, as the World War II reignited the American industry.
Like it was during the 1930s, we’ve been facing price failures, a credit freeze and massive bank runs since 2007. The economy is yet to fully turn around from this recession with a recorded unemployment rate of 1 percent deflation, 9.4 percent, commodity price collapse and bank failures (Wolf, 2012). The most probable cause for any economic depression or recession is the improper use of economic tools – supply, demand, costs, production relationships, benefits and preferences – in describing and analyzing the market processes as individuals allocate the scarce resources in satisfying the most possible wants.
Recession is economic downturn when employment and output are falling for a period of not less than six months (Krugman and Wells, 2006). Factors leading to recession include: people purchasing less, decreased factory production, mounting unemployment, unhealthy stock market, or plummeting personal income (Harris, Edward and Frank, 2012). Such factors, as well as opportunity cost, choice and scarcity characterize and cause an economy to being regarded as in recession.
The economy’s choice factor is greatly impacted by recession. The economy doesn’t exist all by itself; it requires consumers to drive it through their wants. Essentially, the consumers and producers drive the economy, and resources are brought into play at this juncture. Resources refer to anything which can be utilized in production such as labor, land, human capital and physical capital (Krugman and Wells, 2006). Resources enable producers to create the products, and the consumers to buy and use the products.
Supply and demand plays a vital role in the relationship between the producer and the consumer. Producers’ outputs as well as prices are hinged on the consumers’ will to buy the products. But what happens when resources suddenly become scarce and there’s shortage? How is the economy affected?
To start with, when certain resources are scarce, their prices shoot up. In an attempt to recover losses, prices of resources which producers need to buy to create products also increase. Essentially, the entire economic system flow and stability is thrown off. Scarcity leads to trade offs, which in turn results to opportunity cost, or something that is given up. Scarcity of products means that producers will have to pay more to acquire what they need, consequently forcing them to raise prices of goods consumers need, leading to individual choice.
Individual choice is important to the producer as it is to the consumer. On one hand, producers must decide on what resource (not) to use, what products (not) to create, quantity to be created, cost of the product, where to sell the product...