Causes and effects of the Great Depression

Causes and effects of the Great Depression

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What was the Great Depression

• 1929-1939- Severe economic downturn leading to deflation, high unemployment, a decline in the gross domestic product, and a rise in poverty

Overproduction & Unemployment

• Farming overproduction: After WWI, US farmers saw a decline in demand (when demand falls, price falls) to make up for lower prices, farmers produced more (cycle of deflation)

• Factories switched from making war items to consumer items --> produced more and more consumer goods (eventually demands falls)

• When demand falls, factories lay off workers--> people cannot buy things (cycle of unemployment)

Poor personal planning

• Consumerism after WWI outpaced the money people had saved

• People bought items on credit

• People bought stocks on margin (pay 10% now and the rest when your stock goes up)

• Did not plan for a future when the economy wasn't booming

Open Ended

How did overproduction production and unemployment create a cycle of poverty for 10 years?

Unregulated Stock Market

• There are very few rules to regulate the stock market

• Buying on margin: lead to risky investments and inflated stock prices

• Junk stocks- fake stocks for companies that don't actually exist

• Black Thursday (Oct. 24, 1929)- panicked stockholders begin selling shares

• Black Tuesday (Oct. 29, 1929)- at that point in history- biggest one day stock loss

Open Ended

Why would the stock market crash impact the wealthy and middle class more than the poor?

Open Ended

Many people who lived through the Great Depression refuse to put their money in the stock market, why do you think that is?

Tariffs lead to trade wars

• During the 1920s, isolationism causes nations in raise their tariffs

• Tariff- tax on imports (makes goods from other nations more expensive than domestic goods)

• As the US starts to realize overproduction is leading to deflation, it raises tariffs even higher (Smoot-Hawley Tariff)

• Other nations respond --> led to trade war and international trade plummets

Open Ended

What is a tariff?

Bank runs

• Banks had heavily invested in the stock market in the 1920s

• When the stock market crashed in 1929, banks lost A LOT of money

• A rumor began that banks did not have $

• People rushed to the banks to take all of their $ out of the bank

• Banks had to shut down (there was no protection and people lost everything)

• People who had money began hoarding it instead of spending to stimiulate the economy

-AAA- Agricultural Adjustment Administration: paid famers to produce less

-WWII- production had to increase to make war supplies

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Effect

-Social security- money to people too old/disabled to work

-Unemployment insurance- help people who got laid off

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Effect

• 1944 (End of WWII)- Meeting at Bretton Woods Conference -

• GATT- General Agreements on Tariffs and Trade (economic alliance treaty)

  • Keep nations from setting high tariffs during economic turmoil​

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Effect - New International Finance system

Multiple Choice

Why would the international community focus on tariffs after the Great Depression?

• Many nations raised their tariffs during the Great Depression, making the situation worse

• Many nations lowered their tariffs during the Great Depression, making the situation worse

• No nation had ever created a tariff, it was an experiment in economic stability

• FDIC - government insures bank deposits. 

• Bank holidays- stopped people from withdrawing $

• Glass-Steagall Act- commercial banks and investment banks were separated​ (repealed in 1999)

Effect: Gov. regulation of banks/stock market

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Multiple Choice

How would the FDIC most help the economy during the Great Depression?

• It gave jobs to people who had previously worked in banks

• It kept banks from investing money without government permission

• It increased trust in banks by insuring deposits even if the bank went out of business

• It created an accountability system to ensure stocks were real and valuable

• SEC - new agency to regulate stock market​

  • Makes sure junk stocks aren't sold

  • Can halt stock sales

  • Can investigate fraud

Effect 3: Gov. Stock market

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Open Ended

What do you think was the greatest impact of the Great Depression on the US/world?

Explain your reasoning.