The Great Depression became a serious economic crisis that began in 1929. It began in the United States of America with the stock market crash and gradually spread into other countries of the world. The main cause of the crisis has been the decrease in aggregate demand due to underconsumption and over-investment. As a result of under-consumption and excessive investment, the stock of finished goods began to accumulate, resulting in a low price level and therefore a low level of profit. Money in the economy had been converted into unsold stock of finished products that lead to an acute decrease in employment and thus the level of income has fallen drastically.
The demand for commodities in the economy was so low that output was reduced leading to unemployment. In the United States, the unemployment rate had increased from 3% to 25%. The Great Depression has its own implications and importance in the economy, as it leads to the failure of the conventional approach to the economy. Those who believed in the market forces of demand and supply, opened the door to the emergence of the Keynesian approach. It was this incident that provided economists with sufficient evidence to recognize macroeconomics as a distinct sector of the economy