The Great Depression

Causes of the Depression  Overproduction in the 1920’s  New technology and agricultural change  Unequal distribution of wealth (no buying power)  Easy Credit ( many people bought on credit)  Speculation in the stock market  Tariffs (Smoot-Hawley)  Restricted money supply

Causes of the Dust Bowl  Soil Erosion (overproduction)  Poor irrigation practices  Drought

Causes of the New Deal  Role of the government in economy increased significantly  The New Deal was a series of programs and agencies designed to provide the American people with  Relief  Reform  recovery

Consequences of the Great Depression  Political  Blame Hoover  FDR elected (rise of democrats)  Rise of totalitarian governments  WWII on the horizon  Economic  Unemployment rising (all over world)  Social Development  Wider gap between status groups

Consequences of the Dust Bowl  Political  Subsidies of farmers  Economic  Loss of income, “penny auctions”  Social Development  2.5 million people move because the region could no longer support the people

Consequences of the New Deal  Political  Direct governmental control in industry growth  Economic  Increased government role in the nations economy  Ex SEC- regulates the stock market  Social Development  Fears of socialism  some nations turn to socialism  countries like the US and Great Britain made changes with capitalistic system

Significance of the Stock Market Speculation  “buying on margin”  when stock market crashed people and businesses lost all they had invested  and borrowed still owed their lenders

Reasons for Federal Reserve  Controls the flow of currency and establishes interest rates  Impact of Federal Reserve  Impacts the well being of the US economy  Cost of car loans is influenced

What was the key reason for the creation of the Federal Reserve System?  To promote economic stability  FRS regulates the amount of money in circulation

 One way the Federal Reserve System seeks to influence the US economy is by raising or lowering the rate of interest (discount rate) that member banks must pay to borrow money from the Federal Reserve  Consider that the inflation rate rose significantly from 1976 to 1980, identify the change (increase or decrease) the Federal Reserve system could have made in the discount rate to reverse that trend.  Describe the expected impact this change in the discount rate would have on  Consumer spending  Business spending  Explain why this change in the discount rate would produce the desired effects on spending

 FRS could have raised the discount rate  This leads to a decrease in consumer spending  This leads to a decrease in business spending  With less money in circulation, it would lessen inflation and promote economic stability

How did the US government’s role in the economy change as a result of the Great Depression  Federal government expanded its role in regulating economic activity promoting economic growth

If the US government wanted to encourage businesses to hire more employees, would the government raise taxes or lower taxes on businesses? Explain your answer.  Lower tax rates  Businesses would have more money to hire employees