Causes of the Great Depression

Serves as the central bank of the United States The Federal Reserve Serves as the central bank of the United States Created to: - Supervise and regulate banks - Regulate interest rates between banks - Control the amount of currency in circulation - Loan money to banks

Words Of The Wise Stocks: shares in business ownership whose price and value fluctuate Speculation: short term investment in cheap stocks which will be sold at great profit later Margin: gambling on the market by buying stocks at a fraction of the actual cost - An investor puts down 5% of the cost of the stocks - The broker loans the rest using the stock as collateral - If prices rise the investor repays the broker - If prices fall the broker seizes the stocks - In order to float these loans brokers borrow from banks - Banks borrow from the Federal Reserve and each other

A period of extended and severe economic decline What Is Depression? A period of extended and severe economic decline with high unemployment and low production

Cause And Effect Of The Great Depression Speculation On The Stock Market Market was saturated with short term investments. People were not putting money in banks.

Cause And Effect Of The Great Depression Buying Stock On Margin No real money to back investments. Investors could not pay brokers. Banks had no money.

Cause And Effect Of The Great Depression Monetary Policy Credit was frozen. There was not enough money to allow the economy to bounce back.

Cause And Effect Of The Great Depression Wealth Distribution Not enough buying power for consumers. Underconsumption: Goods were stacking up in warehouses.

Cause And Effect Of The Great Depression Agricultural Overproduction Overproduction meant farms did not turn a profit. Did not need, or could not afford, laborers.

Cause And Effect Of The Great Depression Low Demand For Industrial Products Overproduction + Underconsumption = Unemployment

Cause And Effect Of The Great Depression Foreign Economies Decline Money tied up in stocks. Banks could not loan money. Foreign governments not buying U.S. goods

Cause And Effect Of The Great Depression High Tariffs Contributed to under consumption. Foreign goods not being purchased.

Add it all up and you get the GREAT DEPRESSION