Causes:
- Stock Market crash of 1929
- Reduction in purchasing across the board.
- Drought conditions
- Bank failures
- America/Europe economic policy
Stock market crash:
- Result of economic imbalances and structural failures.
Buying on credit:
- Allowed people to buy things and then pay for them later
- this combined with what the American people at the time thought was a strong economy encouraged americans to buy stock in hope of making a profit off of them
- But when the stocks value plummeted in 1929 everyone rushed to sell their shares and try to make up for what they had lost
Buying on the Margin:
- Buying on margin which was similar to buying on credit allowed people to buy shares for 10% to 20% of their actual value
- which meant you were borrowing 80% to 90% of the value
- So the “margin millionaires” went broke when the stock market collapsed. It also affected those banks and investors who had lent money to those buying on the margin.
Agricultural Recession:
- Since better technology was increasing supply at a higher rate and demand for food was not increasing at the same rate prices fell and farmers incomes dropped.
- Farmers had all this technology to farm at a faster rate but they were unable to sell the crops
- And it was difficult for unemployed farmers to get jobs elsewhere in the economy
Bank Failure:
- They failed because people began to lose their savings due to the deposits in the bank
- They decided to be more careful about who they give loans out to (they check your credit score).
Long-Lasting impact on the US
- Tariffs increased quickly
- A lot of people were out on jobs.
- The “Federal Deposit Insurance(FDIC)” was set up, so your money would be safe if the banks failed.
- The social security system was set into place
Impacts the stock market crash of 1929
- Had a rippling effect throughout the economy and the nation
- The crash caused many banks to fail, which caused many businesses to fail, which caused unemployment to greatly rise, which caused consumers to have less money, which forced remaining businesses to lower their prices
- It took many years to break this cycle.
How did the Government solve the problems the depression caused:
- Began to solve problems when Franklin D. Roosevelt took office
- During the first days of his term he passed bank reform laws, emergency relief programs, and new ag programs
- This was known as the “First New Deal”
The First New Deal:
- The first new deal was intended to fix the economy from the top-down.
- So formed the Agricultural Adjustment Act which paid farmers to produce less
- Anti-monopoly laws and price fixing was also part of the New Deal along with stabilizing wages
The Second New Deal:
- National Youth Administration- It Worked on getting unemployed youths jobs and later trained them for war related jobs
- The National Labor Relations Act (NLRA)-This focused on stopping Employers from using intimidation to break up unions. As a result, wages of the ordinary person rose.
World War II:
- As soon as the war began the New Deal ended
- The same year the US joined the war in 1941, the Great Depression ended.
- The reason the war ended it is because Roosevelt spent all the money necessary to win the war which put more money into circulation.
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