Topic Videos

Root causes of an economic depression

AS, A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 4 Apr 2020

In this video we look at the waves that can hit an economy and bring about a depression.

Will support policies be enough to mitigate the worst of the economic damage?

Root causes of an economic depression

What can cause recession to become depression?

  • Scale of the shock hitting the world economy is huge
  • Huge surge in unemployment claims
  • Steep fall in output in supply-chain businesses
  • Sharp drop in confidence hitting planned investment
  • Negative multiplier effects will amplify size of the downturn
  • Economic crisis might prompt a return to protectionism
  • Surge in business failures due to high levels of debt and collapse of cash-flow

Sudden stop

  • Shop, leisure & factory closures
  • Stay at home
  • Social distancing

Collapse in employment

  • Steep rise in jobless totals
  • Fall in wage income
  • Drop in business and consumer confidence

Negative multiplier effects

  • Delayed spending
  • Increased precautionary saving
  • Drop in orders for components, raw materials

Businesses cut investment

  • Fall in orders for new equipment
  • Supply-chain industries retrenching on investment

Growing business failures

  • Increased banking sector risks from bad debts
  • Reluctance of banks to lend to SMEs & others

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