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The Great Depression

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Vass Gergely
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19 views3 pages

The Great Depression

Uploaded by

Vass Gergely
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Vocab

Accentuated: make more noticeableDepression


Market Bubble: economic cycle
Interest rate
Policy
Legislation
Tariff
Conundroms
Gold standard

What was?
The term "Great Depression" refers to the greatest and longest economic
recession in modern world history. The Great Depression ran between 1929
and 1941, which was the same year that the United States entered World War
II . This period was accentuated(ikszentsuétid)by a number of economic
contractions. Economists and historians often cite the Great Depression as one
of the largest catastrophic economic events of the 20th century.

Causes
Stock market Crash
During the short depression that lasted from 1920 to 1921, known as the
Forgotten Depression, the U.S. stock market fell by nearly 50%, and corporate
profits declined by over 90%. The U.S. economy enjoyed robust growth during
the rest of the decade. The Roaring Twenties, as the era came to be known,
was a period when the American public discovered the stock market and dove
in headfirst. The NYSE bubble burst violently on Oct. 24, 1929, a day that came
to be known as Black Thursday. The stock market would eventually fall almost
90% from its 1929 peak.

Fed mistakes
By keeping interest rates low in the early to mid-1920s, the Fed contributed to
the heady expansion. Then, after the crash, it did just the opposite of what
economists would advise today: Instead of lowering interest rates, the Fed
raised them, doubling them in 1931 from their pre-Crash levels. The idea was
to discourage lending and borrowing — the "wild speculating" that encouraged
the market to bubble, then burst.
The Fed also followed the "liquidationist" policy, a policy in which the central
bank stands aside and lets troubled banks collapse. Theoretically, a stronger,
sounder banking system would emerge. The policy ended up taking out smaller
banks, not necessarily bad banks. By 1933, 11,000 of them had failed, wiping
out the savings of millions.

Overproduction & Reduction in purchasing power


But all was not as roaring as it seemed. Consumers spent outside of what they
could afford, and companies over-produced to keep up with this demand. After
the wwaves of the great depression, the United States still didn’t lowered the
prices and with the high unemployment rate combined, it didn’t help the
economy to revive.

Solving attempts
Hoover
Used legislation to prop up prices and hence wages by choking out cheaper
foreign competition. Following the tradition of protectionists, and against the
protests of more than 1,000 of the nation's economists, Hoover signed into
law the Smoot-Hawley Tariff Act of 1930 . The act was initially a way to protect
agriculture but swelled into a multi-industry tariff. Nearly three dozen
countries retaliated, and imports fell from $7 billion to just $2.5 billion in 3
years. By 1934, international trade had declined by 66%. Not surprisingly,
economic conditions worsened worldwide. Hoover's desire to maintain jobs
and individual and corporate income levels was understandable. However, he
encouraged businesses to raise wages, avoid layoffs, and keep prices high at a
time when they naturally should have fallen.
Roosevelt
after his election he mainly cotinued the “work” of Hoover but with a larger
scale. One of the most heartbreaking conundrums of the period was the
destruction of excess crops, despite the need for thousands of Americans to
access affordable food. President Roosevelt tried many policies to end the
Depression. Two particularly successful policies were the creation of deposit
insurance, which eliminated bank runs; and the abandonment of the gold
standard, which allowed the money supply to increase and therefore helped
end deflation.
WW2
The Great Depression ended in 1941. This was around the same time that the
United States entered World War II. Most economists cite this as the end
date, as this was the time that unemployment dropped and GDP increased.

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