WHATDUNIT? The Great Depression Mystery

1. WHATDUNIT?The Great Depression Mystery • The American Economy went from unprecedented prosperity in the 1920’s to unprecedented misery in the 1930’s • Why?

2. The Business Cycle: The Ups & DOWNs of the Economy

3. 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)

4. 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

5. Peak Prosperity Recession Boom Contraction Expansion Recovery Bust Trough Depression

6. Troughs • Recession= Two successive 1/4’s (3 month periods) of declining Gross Domestic Product ($ of government,consumer and business spending) • Depression= Unemployment > 12%

7. Business Cycle • Expansion/Recovery • Higher demand -->surplus reduction -->more production -->recall of workers -->more purchasing -->greater confidence -->increased investments -->economic growth

8. The Great Depression1930-1941 • Note: a nation does not go directly from prosperity to a depression • A nation must first experience a recession

9. Agricultural Overproduction Industrial Overproduction Overspeculation Easy Money (credit) Poor Monetary Policy Poor Fiscal Policy High Tariffs Causes of the Great Depression

10. Agricultural Overproduction • Increased Technology-farm more land • Good Growing Conditions • European Nations no longer need help • Surplus Food • Supply Outstripping Demand

11. Industrial Overproduction • Wages not keeping up with inflation • Thus fewer people able to buy expensive goods • Supply outstripping Demand • Surplus housing, autos, etc.

12. Overspeculation • Get rich quick syndrome • Margin buying (10% down) • Lack of government regulation • Panic selling • 1929 Stock Market crash

13. 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

14. 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

15. 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

16. 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

17. Money in Circulation(Currency +bank deposits) • Source: US Bureau of the Census, Historical Statistics of the United States, US Government Printing Office, Washington D.C., 1960

18. Number of U.S. Bank Closing Temporarily or Permanently, 1920-1933 Source: US Bureau of the Census, Historical Statistics of the United States, US Government Printing Office, Washington D.C., 1960

19. Game 1: Blackhawks vs. Canucks tonight @ 9 on VS. Watch it.