What Caused the Great Depression? History Mystery What Caused the Great Depression?

I. Why was there overproduction, in other words, why were there more goods than could be sold? 1) During the 1920s the public began to purchase a large number of consumer goods (i.e. cars and home appliances) 2). * This growth in consumerism led to corporate profits in the 1920s to increase by 286%. 3) Owners used their profits to build more factories in order to make more goods for still more profit. 4) Owners also bought new labor-saving machinery as a way to make even more profit by reducing the number of workers they had to pay.  5) Due to the labor-saving machinery, it took half as many workers to make the same number of products in 1932 as it did in 1915. 6) When workers are unemployed, they have less available money and buy fewer goods.

II. How did an unequal distribution of wealth add to overproduction?   1) * During the 1920s, wages went up 14% while corporate profits went up 286%. 2) When corporations have high profits, workers have comparatively less money. 3) The profits ended up going to a select few, but not workers. These people could only buy so many toasters. 4) When workers have less money, they can buy fewer goods.

III. What happened with stocks in the 1920s, before the crash of 1929? 1) * In the 1920s a growing number of Americans began to invest in the stock market. 2) Many of these new investors bought stock using credit assuming that the prices of stocks would always climb. 3) The prices of many stocks went up quickly from 1920-1928.

IV. Why did the stock market crash? 1) * In 1929, overproduction became a crisis, causing financial problems for many companies, who couldn’t sell enough of the products they made. 2. Stock prices are supposed to indicate the worth of a company. 3. When stock prices are much higher than a company is actually worth, they can fall quickly if the company had financial problems.

V. How did the 1929 stock market crash affect the larger economy? 1) * When stock prices dropped, banks and other businesses suddenly had less money. 2) When less money is available, a bank or other business may insist that any loans be paid back immediately. 3) Many people could not pay back their loans because they had lost their job or their savings when the stock market crashed. 4) If a bank or other business issues loans that aren’t paid back, that business may go out of business itself. 5) When a business closes, the workers all lose their jobs.

VI. What problems did farmers face during the 1920s? 1) * The income of farmers drop because the value of the crops decline. 2) Farmers need to take out loans in order to continue operations. 3) Farmers who can’t sell enough of their crops cannot pay back their loans. 4) Farmers who could not pay back their loans had their farms taken away.

VII. What caused the problems the farmers faced? 1) * New farming technology increased the productivity of farms. 2) Demand for farm products dropped sharply after World War I ended, because Europe didn’t need our food anymore. 3. Because there was a surplus of crops, the value of crops decline; thus leaving farmers with little money.

VIII. Why did banks fail after the stock market crashed? Throughout ‘30s over 9,000 banks failed. Bank deposits uninsured. People lost their savings. S surviving banks unwilling to lend, fear of failure. = gradually tightened economy. How can we solve this problem? (Provide confidence for banking customers)

IX. Why did consumption decline after the stock market crashed IX. Why did consumption decline after the stock market crashed? How did this contribute to the Depression? Crash + fear of further decline = paralyzed market = decreased production = lay-offs = inability to pay back loans = repossession of goods = lesser ability to purchase = more inventory accumulation = more unemployment = less gov’t revenue (no income taxes) to fund programs to alleviate problems = utter despair in society

X. Gov’t Intervention (or lack thereof) Businesses failing, gov’t tries to protect American industry. = Smoot Hawley Tariff, impacts High protection tariffs caused world trade to dry up and no place for American manufactures to be sold Increased import taxes = decreased trade = less commerce and a bad relationship, economic retaliation Hoover’s attempts