Causes of the Great Depression

Homburg

Inflation

• Most Europeans countries emerged from WWI with inflated currencies

• After German hyper-inflation, Europeans feared inflation as a source of social and political instability.

• Most European governments refused to run budget deficits when the depression struck

German economy

• 1914- German Mark was 5 to $1

• 1922- German Mark was 162 to $1

• End of 1922- Mark was 7000 to $1

• 1923- German Mark was 294,000 to $1

• End of 1923- Mark was 4.4 trillion to $1!!!

Definitions

• Gross Domestic Product (GDP)-  refers to the market value of all final goods and services produced within a country in a given period.

• Recession- Decline in Gross Domestic Product (GDP) for two or more quarters

• Depression- Economic downturn where GDP declines by more than 10%

• The depression originated in the U.S. starting with the stock market crash of 1929. It quickly spread to almost every country in the world

• GDP declined by more than 30 percent from 1929-33

• Unemployment in the U.S. rose to 25%

• Crop prices fell by 60%

U.S. Stock Market Crash 1929

• Share prices were rising throughout the 1920s. People speculated prices would rise further

• Many people borrowed money to buy more stocks

• The market turned and people began panic selling

Agriculture Problems

• Agricultural problems- better farming and transportation led to increased supply and lower prices

• Tariffs often prevented the export of grain among European countries

• Farmers would borrow money to buy machinery and land, they could not make payments because of falling prices

GDP

Unemployment

• A recession is when your neighbor loses his job. A depression is when you lose yours. (Ronald Regan)

The Great Depression vs. The Great Recession

• The Great Depression – GDP declined by more

than 30 percent from 1929-33

– Unemployment in the U.S. rose to 25%

• The Great Recession– 8.4 million job losses– Unemployment in the

U.S. is 8.5%-15.6%– GDP declined by as

much as 2.9%

John Maynard Keynes