Part 2 The Beginning of The Great Depression The Great Depression

The Great Depression Public officials & Business leaders insisted the stock market crash was a temporary and minor setback Public officials & Business leaders insisted the stock market crash was a temporary and minor setback Coming events would prove them wrong Coming events would prove them wrong

Causes of the Great Depression 1. Banking Crisis 2. Business Failures 3. Rising Unemployment 4. Global Depression 5. Income Gap / Consumer Debt 6. Business Cycle

1. The Banking Crisis Cause: Stock Market Crash – Cause: Stock Market Crash – Directly affected only a few Americans Directly affected only a few Americans Indirectly – affected millions Indirectly – affected millions Effect: Bank failures led to complete loss of all money in that bank Effect: Bank failures led to complete loss of all money in that bank

Banking Crisis Banks make money by investing their customer’s money Banks make money by investing their customer’s money Result: When the market crashed banks suffered severe losses like all investors Result: When the market crashed banks suffered severe losses like all investors

Defaults On Loans Cause: Many investors had lost most of their money in the crash Cause: Many investors had lost most of their money in the crash Effect: Most could not repay their bank loans Effect: Most could not repay their bank loans Result: This left many banks with little income Result: This left many banks with little income = Many banks had to close = Many banks had to close

Fear of Additional Failures Cause: Depositors fear losing their money if a bank closed Cause: Depositors fear losing their money if a bank closed Effect: Depositors panic and began trying to withdraw their savings Effect: Depositors panic and began trying to withdraw their savings Result: Catastrophe for banks that were already low on money Result: Catastrophe for banks that were already low on money Led to more bank failures Led to more bank failures

2. Business Failures Over 26,000 businesses went bankrupt in 1930 alone Over 26,000 businesses went bankrupt in 1930 alone GNP = total value of goods & services produced per year. GNP = total value of goods & services produced per year. Gross National Product (GNP): Gross National Product (GNP): $103 Billion $103 Billion $56 Billion $56 Billion

Decreased Consumer Spending Cause: Consumers became unwilling or unable to buy new products Cause: Consumers became unwilling or unable to buy new products Effect: Debt & fear of bank failures brought an end to purchasing on credit Effect: Debt & fear of bank failures brought an end to purchasing on credit Result: people not buying stuff Result: people not buying stuff

3. Rising Unemployment Cause: massive amounts of business failures Cause: massive amounts of business failures Effect: People lost their jobs as their companies simply ceased to exist Effect: People lost their jobs as their companies simply ceased to exist Result: 1932 – Result: 1932 – Unemployment reached 23.6% Unemployment reached 23.6% Up 20% over 3 years Up 20% over 3 years Underemployment – over 50% Underemployment – over 50%

4. Global Depression Economic troubles in Europe contributed to the depression Economic troubles in Europe contributed to the depression Global economy was struggling due to massive war debts Global economy was struggling due to massive war debts World trade declined in the 1920s & 1930s World trade declined in the 1920s & 1930s

Global Depression’s Impact on America Cause: Foreign customers unable to purchase American goods – too expensive Cause: Foreign customers unable to purchase American goods – too expensive Effect: American industries were left with large surpluses Effect: American industries were left with large surpluses America placed high tariffs on foreign goods to help business America placed high tariffs on foreign goods to help business Smoot-Hawley Tariff:- highest in US History Smoot-Hawley Tariff:- highest in US History Accelerated the global depression by eliminating the American market for foreign industry Accelerated the global depression by eliminating the American market for foreign industry

Income Gap / Consumer Debt Disposable income - $ left after buying necessities Disposable income - $ left after buying necessities 1923 – 1929: Cause: 1923 – 1929: Cause: Disposable income of the wealthiest 1% of Americans increased by 63% Disposable income of the wealthiest 1% of Americans increased by 63% Disposable income for the poorest 93% declined by 4% Disposable income for the poorest 93% declined by 4% Effect: poor Americans lacked the $ to boost the economy Effect: poor Americans lacked the $ to boost the economy

6. The Business Cycle = The regular ups and downs of business in the free enterprise economy = The regular ups and downs of business in the free enterprise economy

The United States Business Cycle,

Business Cycle Theory Prosperous Times: Prosperous Times: -Industry increases production & hires more workers -Industry increases production & hires more workers =Production develops surplus =Production develops surplus During Surpluses: During Surpluses: - industry scales back production - industry scales back production =Workers are laid off and lose purchasing power =Workers are laid off and lose purchasing power

Recession / Depression Lasts until surpluses are depleted Lasts until surpluses are depleted Once surpluses are depleted industry increases and we start over Once surpluses are depleted industry increases and we start over