1. What caused the greatest economic crisis in American history?

2. What caused the greatest economic crisis in American history?
The Stock Market crash triggered a long period of falling stock prices.
Bank failures wiped out depositors’ savings.
Under consumption hurt sales as people stopped buying goods. The few rich people didn’t buy enough, the many poor didn’t spend enough, to consume all the products being produced.
Overproduction of goods led to cutbacks and layoffs.
High tariffs hurt foreign sales.

3. Government Actions Make a Bad Situation Worse
By early 1931, the economy was in shambles.
Stock prices had plunged, bank closings were widespread, manufacturers were incapable of selling their products, and farmers were entering their second decade of financial distress.
The federal government, under the leadership of President Herbert Hoover, took measures to improve the situation. Unfortunately, instead of mitigating damage, many of the government’s actions worsened matters.

4. A Tight $ Supply Hobbles the Economy
Numerous economists blame the Federal Reserve System, or “the Fed,” for further weakening the U.S. economy in 1930 and 1931.
The Fed manages the nation’s money supply, and determines the amount of money available for circulation among investors, producers, and consumers.
One way the Fed adjusts this money supply is by setting the discount rate.
The discount rate is the amount or the rate of interest at which banks belonging to the system can borrow money from Federal Reserve banks. Member banks use the Fed’s discount rate to determine the interest rates they will then charge borrowers.

5. Before the stock market crash, the Fed kept interest rates low, since low rates made borrowing easier, and easy borrowing kept money circulating.
In fact, low interest rates had supported the excessive borrowing trend of the 1920s.

6. Following the crash, Federal Reserve officials maintained low rates for a time, then began raising the discount rate in 1931.
This action immediately decreased the amount of money moving through the economy, the timing of which could not have been worse.
Many people had already stopped spending, and producers had slowed production. 
Higher interest rates deprived businesses of the capital necessary for their survival, further incapacitating the economy.
As the amount of money dwindled, the economy slowed significantly, like an animal going into hibernation.

7. If Federal Reserve officials had concentrated on expanding the money supply after the crash, conditions might have improved.
More money in circulation would have stimulated the economy to grow by making loans less expensive, so companies would have found it easier to borrow the money they needed to stay in business.
In turn, this would have reduced companies’ need to lay off so many workers, and consumers would have possessed more spending money, keeping factories operational.
Instead, the Fed allowed the money supply to drop by one-third between 1929 and 1933, which helped turn a nasty recession into an economic calamity.

8. Tariffs Cause Trade Troubles
 Economists also blame Congress for making decisions that further aggravated economic woes. 
To understand this, one needs to look beyond the United States and observe how financial problems overseas, particularly in Europe, contributed to the onset of the Great Depression.

9. How did Europe contribute to the Great Depression in America?
World War I left much of Europe in economic shambles.
While the Allies were having difficulty paying back money borrowed from U.S. banks to finance the war, Germany was faring even worse.
The Germans were only able to afford their reparation payments to the Allies by borrowing the necessary funds from the United States.
To earn the money required to pay off these debts, European nations desperately needed to sell large amounts of goods in the United States. 
After the war, however, Congress enacted tariffs on many imported goods that made these sales difficult.
How did Europe contribute to the Great Depression in America?

10. How did the Hawley-Smoot Tariff Act exacerbate problems?
In 1930, Congress exacerbated this issue by passing the Hawley- Smoot Tariff Act [Hawley-Smoot Tariff Act: a law passed by Congress in 1930 to raise the tariffs on imported goods in order to protect U.S. businesses and farmers]. 
Through this act, Congress intended to protect American businesses from foreign competition by raising tariffs even higher. 
Instead, it triggered a trade war, and European countries similarly raised their tariffs on goods imported from the United States.
As a result, U.S. farmers and businesses were not able to cope with overproduction by selling their excess goods to other countries.
How did the Hawley-Smoot Tariff Act exacerbate problems?

11. The record-high tariffs on both sides of the Atlantic stifled international trade.
This, in turn, caused a slump in the global economy.
Gradually, the Great Depression spread around the world.