WHATDUNIT The Great Depression Mystery The American Economy

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

The Business Cycle: The Ups & DOWNs of the Economy

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)

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

Peak Prosperity Recession Expansion Boom Contraction Recovery Bust Trough Depression

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

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

The Great Depression 1930 -1941 • Note: a nation does not go directly from prosperity to a depression • A nation must first experience a recession

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

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

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

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

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

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

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

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

Money in Circulation (Currency +bank deposits) Year Money in Circulation (Billions) 1929 1930 1931 1932 1933 $26. 2 $25. 1 $23. 5 $20. 2 $19. 2 • Source: US Bureau of the Census, Historical Statistics of the United States, US Government Printing Office, Washington D. C. , 1960

Number of U. S. Bank Closing Temporarily or Permanently, 1920 -1933 Year Number of Bank Closings 1920 168 1921 505 1922 367 1923 646 1924 775 1925 618 1926 976 1927 669 1928 499 1929 659 1930 1352 1931 2294 1932 1456 1933 4004 Source: US Bureau of the Census, Historical Statistics of the United States, US Government Printing Office, Washington D. C. , 1960

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