The Great Depression

What is a depression?What caused the Great Depression?

What was the economy like in the 1930s?

Healthy Business Cycle

Unhealthy Business Cycle

Recession vs. DepressionRecession: • more than 8 consecutive quarters of decreased growth in national

output

• A significant decline in economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales

Depression: • a long time of decreased growth in national output (more than 12

consecutive quarters)

• A prolonged and continued significant decline in economic activity spread across the country, lasting more than a few years, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales

1930s Economy

http://www.ssa.gov/history/briefhistory3.html

What was “feeding” the Great Depression?

Germany in the 1920s– Too much money put into circulation– Value of the money went down– Prices went up

U.S. in the 1930s– Too little money in circulation– Value of the money went up– Prices went down

INFLATION

DEFLATION

President Herbert Hoover(1929-1932)

• Fiscally conservative president

• Mining engineer, then Sec. of Commerce before president

• Believed government and economy should be separate

• Organized “volunteer” efforts to try to stop Depression

• Hoover Blankets• Hoovervilles• Hoover Wagon• Hoover Flag

President Franklin Roosevelt (1933-1945)

• Campaign slogan was “New Deal” for the American people

• Surrounded himself with his “Braintrust”

• Felt it was the responsibility of government to intervene in economy in a massive way

John Maynard Keynes

• British economist

• Worked with British government to address Depression in Great Britain

• Radical ideas regarding role of government in economy

Keynesian Economic Theory • A circular flow of money: when spending increases in an

economy, earnings also increase, which can lead to even more spending and earnings

• “Prime the pump”: Keynes argued that government should step in to increase spending, either by increasing the money supply or by actually buying things itself

• Against the practice of too much saving and not enough consumption, or spending, in an economy