Final answer:
The major causes of the Great Depression included the 1929 stock market crash, excessive bank lending, debt accumulation, and decreased consumer spending. In response, the U.S. government enacted the New Deal, establishing regulatory bodies and social welfare programs to stabilize the economy and prevent future crises. These actions reflected a shift towards accepting more governmental involvement in the economy.
Step-by-step explanation:
Causes of the Great Depression
The Great Depression was triggered by multiple factors, with the 1929 stock market crash being the most prominent one. This catastrophic financial plummet was compounded by a variety of other elements, including excessive bank lending, a fragile banking system, and high levels of debt among consumers and farmers. Furthermore, an unequal distribution of wealth, a decline in consumer spending, and overproduction of goods exacerbated the economic crisis. Internationally, the use of protectionist policies such as tariffs stifled trade and worsened economic conditions worldwide.
Governmental Responses and Preventative Measures
To address the dire situation and prevent future crises, the U.S. government, under President Franklin D. Roosevelt, implemented the New Deal. These policies and programs aimed to provide immediate economic relief, stimulate recovery, and reform the financial system. Notable examples include the establishment of the Securities and Exchange Commission (SEC) to regulate the stock market, the introduction of the Federal Deposit Insurance Corporation (FDIC) to protect bank deposits, and the formulation of Social Security to aid the elderly and unemployed. These interventions also reflected a broader shift in American thought, where greater government involvement in economic and social welfare became more acceptable.
While these measures helped stabilize the economy, their effectiveness in preventing another depression was underscored during the 2008 financial crisis. Policymakers drew upon lessons from the Great Depression and employed Keynesian economic policies, injecting government spending into the economy to stimulate growth and avert a similar catastrophe.