Countries often resort to imposing barriers to trade during difficult economic t
ID: 1117534 • Letter: C
Question
Countries often resort to imposing barriers to trade during difficult economic times. Recall the Great Depression, which began in 1929, where unemployment increased to 25 percent in 1933. One reason for both the depth and long duration of the Great Depression was
a). the serious implications of the Great Depression were inevitable given the stock market crash.
b). in 1930, the US passed the Smoot-Hawley Tariff Act, which increased average import duties to an all-time high of 59 percent in an attempt to stimulate domestic employment.
c). in the mid-1930s, the international organization called GATT, the General Agreement on Tariffs and Trade, was created to stimulate international trade.
Explanation / Answer
The effect of depression was inevitable due to the (a) the serious implication of the stock market crash. The stock market crash led to decline in consumer confidence and thereby led to lower spending of the people. Investment led factories and other businesses to slow down production and begin firing their workers. For those who were lucky enough to remain employed, wages fell and buying power decreased. The situation was further aggravated by the run on bank due to poor confidence of the investors.