WHATDUNIT? The Great Depression Mystery The American Economy went from unprecedented prosperity in the 1920s to unprecedented misery in the 1930s Why? The Business Cycle: The Ups & DOWNs of the Economy The Business Cycle BOOM/Prosperity/Peak
High Demand--> desire for more profits/higher confidence-->greater investment --> more production -->higher employment -->more demand --> higher prices (inflation) The Business Cycle Contraction/Slowdown Inflation/Overproduction -->less production -->lay offs -->less spending -->lower confidence -->less investment -->less machinery purchased -->higher
unemployment Until surpluses are used up Peak Prosperity Recession Expansion Boom Contraction
Recovery Bust Trough Depression Troughs Recession= Two successive 1/4s (3 month periods) of declining Gross Domestic Product ($ of government,consumer and
business spending) Depression= Unemployment > 12% Business Cycle Expansion/Recovery Higher demand -->surplus reduction ->more production -->recall of workers ->more purchasing -->greater confidence ->increased investments -->economic growth The Great Depression 1930-1941 Note: a nation does not go directly from prosperity to a depression
A nation must first experience a recession Causes of the Great Depression Agricultural Overproduction Industrial Overproduction Overspeculation Easy Money (credit) Poor Monetary Policy Poor Fiscal Policy
High Tariffs Agricultural Overproduction Increased Technology-farm more land Good Growing Conditions European Nations no longer need help
Surplus Food Supply Outstripping Demand Industrial Overproduction Wages not keeping up with inflation Thus fewer people able to buy expensive goods Supply outstripping Demand Surplus housing, autos, etc. Overspeculation
Get rich quick syndrome Margin buying (10% down) Lack of government regulation Panic selling 1929 Stock Market crash Easy Money (credit)
Interest rates on loans were too low--> too much borrowing Interest rates on savings were too low ->too much spending -->inflation Excessive real estate construction --> oversupply of housing Poor Monetary Policy Federal Reserve Increased Interest Rates which made money/borrowing more expensive and saving more attractive instead of . Lowering interest rates to give economy a
jump start Poor Fiscal Policy Hoover Administration & Congress cut spending & raised taxes to balance the budget instead of Increasing spending & cutting taxes to jump start the economy i.e. Temporarily Deficit Spending High Tariffs Taxed Foreign Imports to protect our
products Foreign Nations taxed imports from the United States in retaliation Higher prices fed under-consumption Nations stopped paying WWI debt to US Money in Circulation (Currency +bank deposits) Year Money in Circulation (Billions)
Source: US Bureau of the Census, Historical Statistics of the United States, US Government Printing Office, Washington D.C., 1960 Number of U.S. Bank Closing Temporarily or Permanently, 1920-1933 Year Number of Bank Closings 1920
168 1921 505 1922 367 1923
646 1924 775 1925 618 1926
976 1927 669 1928 499 1929
659 1930 1352 1931 2294 1932
1456 1933 4004 Source: US Bureau of the Census, Historical Statistics of the United States, US Government Printing Office, Washington D.C., 1960 Game 1: Blackhawks vs. Canucks tonight @ 9 on VS. Watch it.
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