According to Keynes, what caused the Great Depression, and what could bring the economy into recovery?

Question

What will be an ideal response?

Answer 1

Answers will vary. Keynes looked at the policies in place in the 1920s to prevent inflation after the war, such as had been seen in the hyper-inflation of Germany, as being at least partly responsible for triggering the Great Depression in 1929. Because many European economies were tied into American economy, and the Dawes plan for recovery from the war debt was tied to American economic well-being, this had a cascading effect when the stock market crashed in 1929. Also critical to this, was that Americans called in loans due across Europe, who had to deplete their financial resources to pay these back. This in turn caused a run on banks, bank failures, and mass unemployment. Keynes, however, argued that during the 1920s, European banks had become too conservative about lending money, in conjunction with individuals becoming leery of borrowing. This created an economic slow-down that made the situation ripe for collapse. Keynes proposed that the solution lay in moving away from the gold standard, abandoning the conservative budgets of the time, and sponsoring government programs to put people back to work. Franklin Delano Roosevelt employed this advice in the United States to good measure.