Depression

The Stock Market Crash in Octoberof 1929 is often cited as the beginning of the Great Depression, but didit actually cause it? The answer is no. First, the stock price for a particular company merely reflects current information about the future income stream of that company. Thus, it is a change in available information that changes the stock price. When the Fed began to raise interest rates in early 1929, this began the tumble. However, a stock …

…a higher level than the market clearing price or wage. When this happens, people buy less and employers hire less, thus causing cut backs in production and employment. There are a number of reasons why prices and wages might stick. One reason is referred to as "menu costs," meaning that it often costs money to change a price. A good example is a restaurant that has to print new menus every time the prices change.