How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

Question

What will be an ideal response?

Answer 1

If these programs existed during the Great Depression, they would have mitigated its severity. In our economy today, workers laid off during a recession receive unemployment insurance payments. This extra income results in these workers spending more than they would have without these payments. In addition, households whose incomes fall below certain levels during recessions become eligible for food stamps and other programs. These transfers also help increase spending by these households. The increased spending happens automatically, stimulates aggregate demand, and helps stabilize the economy. These programs did not exist during the Great Depression. Workers who lost their jobs had their incomes drop to zero and had to rely on savings, charity, and borrowing to survive. These workers dramatically cut back on their spending. This contributed to making the economic slowdown worse.