The Great Depression 1929-1939

Economics 101 What is the “economy”? What causes the economy to grow? What causes the economy to slow down or go into recession?

Introduction to Economics Economy: The way in which we produce and distribute goods and services for our society. Types of Economy Human beings have invented many different ways to do this: Hunter-Gatherers – hunter, gathered and shared everything (real communism) Agrarian Feudalism – 90% of the people work and toil to keep the fortunate 10% of the population comfortable and well fed Industrial Capitalism – those with capital ($) established businesses where they can exploit the labour of those without $, thereby creating profit Communism – A system whereby the state exploits the labour of everyone (really, a system where you pretend to work and the state pretends to pay you!)

What makes the economy work? Demand: Our wants – things we need and desire Human beings are a “wanting” animal – every society needs things in order to survive – we organize ourselves to produce these wants

How are Supply and Demand Related? The availability of a good or service Supply and demand are inversely related As demand increases, supply will decrease As supply decreases, prices for that thing will rise This applies to virtually anything that can be bought and/or traded (food, housing, technology, but also currency)

So, what causes an economy to grow? Production increases More Profit More jobs – higher employment People have more money Demand increases

Why is inflation bad for the economy? Demand Inflation (higher prices) Borrowing on Credit Over-production / supply

What causes an economy to shrink – go into recession? Smaller Profit Lay-offs & high un-employment People have less $ Lower Demand Less Production

When demand increases, businesses begin to produce more To produce more, they must hire more people (labour) and buy more raw material (commodities) More people working also means more demand as people spend, and on and on it goes… As a result, prices for all these things will rise – this is called inflation If inflation goes too high, people can no longer afford things – they stop buying This creates less demand, and leads to oversupply Prices begin to drop, businesses slow down production, workers lose their jobs – even less demand, and so on… This is called a recession - this is very bad!