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