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Part 2
The Beginning of
The Great Depression
The Great Depression Public officials & Business leaders
insisted the stock market crash was a temporary and minor setback
Coming events would prove them wrong
Causes of the Great Depression
1. Banking Crisis 2. Business Failures 3. Rising Unemployment 4. Global Depression 5. Income Gap / Consumer Debt 6. Business Cycle
1. The Banking Crisis Cause: Stock Market Crash –
Directly affected only a few Americans
Indirectly – affected millions Effect: Bank failures led to complete
loss of all money in that bank
Banking CrisisBanks make money by investing
their customer’s moneyResult: When the market crashed
banks suffered severe losses like all investors
Defaults On Loans Cause: Many investors had lost most
of their money in the crash Effect: Most could not repay their
bank loans Result: This left many banks with little
income = Many banks had to close
Fear of Additional Failures Cause: Depositors fear losing their
money if a bank closed Effect: Depositors panic and began
trying to withdraw their savings Result: Catastrophe for banks that
were already low on moneyLed to more bank failures
2. Business Failures Over 26,000 businesses went
bankrupt in 1930 alone GNP = total value of goods &
services produced per year. Gross National Product (GNP):
1929 - $103 Billion 1933 - $56 Billion
Decreased ConsumerSpending
Cause: Consumers became unwilling or unable to buy new products
Effect: Debt & fear of bank failures brought an end to purchasing on credit
Result: people not buying stuff
3. Rising Unemployment Cause: massive amounts of business
failures Effect: People lost their jobs as their
companies simply ceased to exist Result: 1932 –
Unemployment reached 23.6%Up 20% over 3 years
Underemployment – over 50%
4. Global Depression Economic troubles in Europe
contributed to the depression Global economy was struggling due to
massive war debts World trade declined in the 1920s &
1930s
Global Depression’s Impact on America Cause: Foreign customers unable to
purchase American goods – too expensive Effect: American industries were left with
large surpluses America placed high tariffs on foreign
goods to help business Smoot-Hawley Tariff:- highest in US
History Accelerated the global depression by
eliminating the American market for foreign industry
Income Gap / Consumer Debt Disposable income - $ left after buying
necessities 1923 – 1929: Cause: Disposable income of the wealthiest 1%
of Americans increased by 63% Disposable income for the poorest 93%
declined by 4% Effect: poor Americans lacked the $ to
boost the economy
6. The Business Cycle
= The regular ups and downs of business in the free enterprise economy
The United States Business Cycle, 1890-1940
Business Cycle Theory Prosperous Times: -Industry increases production & hires
more workers =Production develops surplus During Surpluses: - industry scales back production =Workers are laid off and lose purchasing
power
Recession / DepressionLasts until surpluses are
depletedOnce surpluses are depleted
industry increases and we start over