Authors libby rittenberg 86
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Case in Point: The Cost of the Great
Depression
The U.S. economy looked very healthy in the beginning of 1929. It had
enjoyed seven years of dramatic growth and unprecedented prosperity. Its
resources were fully employed; it was operating quite close to its
production possibilities curve.
In the summer of 1929, however, things started going wrong. Production
and employment fell. They continued to fall for several years. By 1933,
more than 25% of the nation’s workers had lost their jobs. Production had
plummeted by almost 30%. The economy had moved well within its
production possibilities curve.
Output began to grow after 1933, but the economy continued to have vast
numbers of idle workers, idle factories, and idle farms. These resources
were not put back to work fully until 1942, after the U.S. entry into World
War II demanded mobilization of the economy’s factors of production.
Between 1929 and 1942, the economy produced 25% fewer goods and
services than it would have if its resources had been fully employed. That
was a loss, measured in today’s dollars, of well over $3 trillion. In material
terms, the forgone output represented a greater cost than the United
States would ultimately spend in World War II. The Great Depression was
a costly experience indeed.
ANSWER TO TRY IT! PROBLEM
The production possibilities curves for the two plants are shown,
along with the combined curve for both plants. Plant R has a
comparative advantage in producing calculators. Plant S has a
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
86
