1. The Great Depression

2. What is a “Depression”?
A “depression” is a prolonged recession, which is when economic activity is in decline
All economies go through a Business Cycle, that naturally includes periods of economic growth & prosperity (“boom”), followed by periods of recession
A depression is a serious downturn in the economy (“bust”)

3. Recession / Depression?
There is an old joke among economists that states:
A recession is when
your neighbor loses his job.
A depression is when you lose your job.

4. (if prolonged – DEPRESSION)
Business Cycle
Stage 2 - Contraction
Few jobs created
Goods and service production decline
Stage 1 - Expansion
Incomes rise – full employment
Cost of goods and labour rise
= inflation
Stage 3 - Recession
Sharp drop in employment
Prices of goods fall
(if prolonged – DEPRESSION)

5. Business Cycle – cont’

6. Business Cycle – cont’

7. Stage 2 – Contraction / Early Recession Stage 3 – Recession - “trough”
Business Cycle cont’
Stage 1 – Expansion
Involves inflation, recovery, prosperity – leads to a “peak”
Stage 2 – Contraction / Early Recession
decline in growth
Stage 3 – Recession - “trough”
Sharp drop in growth, jobs, price of goods
Depression – prolonged recession

8. The business cycle or economic cycle refers to the fluctuations of economic activity about its long term growth trend. The cycle involves shifts over time between periods of relatively rapid growth of output (recovery and prosperity), and periods of relative stagnation or decline (contraction or recession). Despite being named cycles, these fluctuations in economic growth and decline do not follow a purely mechanical or predictable periodic pattern.

9. Causes of the Great Depression (1929-1939)

10. 1. Overproduction & Stockpiling
During the 1920s
many industries expanding & profits were spent on adding to factories or building new ones
Huge supplies of manufactured goods were simply stockpiled (kept in warehouses unsold) due to overproduction (producing too much too quickly so that goods did not sell)
Eventually unsold goods caused
factory owners to panic, so they:
Slowed down production
Laid off workers

11. Overproduction – cont’
Laid off workers:
 Had less $$ to spend on buying goods, so
 Sales slowed down even more
* Basically = industrial capacity of both USA and Canada expanded beyond the ability of the consumer to consume
# of Jobs
&
Manufacturing
Sales
Down

12. 2. Stock Market Speculation & Crash
October 29, 1929 = Black Tuesday – the Stock Market crashed
Catalyst that triggered all other factors
was an indicator that something was already wrong with the system

13. Stock Market Explanation
Stock Market works by companies selling stocks / shares in their company to investors (people with $$$) to get money to run their companies
In return, investors get a share of the profits of the company (how much depends on the amount of shares they own)
If the company does well – stock values rise
Stockholders may choose to sell shares at a profit, or hold on to them in the hopes that they will continue to increase in value, and therefore make even more money down the road
shareholders
company

14. Stock Market & Crash cont’
In 1920’s – “Speculation” process took place:
many investors bought stock shares “on margin” or borrowed money
borrowed money to buy stocks with the hope that in a short time, the stock’s worth would rise, and they could sell at a large profit
Then they could sell the stock, re-pay the loan, and keep a large profit

15. Stock Market & Crash cont’
When stocks began to decrease in value, investors began to worry and lose confidence in the companies whose shares they had purchased
Many wanted to sell stocks quickly, before prices fell further, and this caused some to sell large volumes of stocks
More investors panicked when this happened, so they sold their stocks, and the value of stocks kept falling and falling

16. Stock Market Crash – cont’
Result of panic: downward spiral
Stocks became worthless
Very few Canadians actually owned stocks, but:
Canadians mostly affected by loss of jobs and falling prices of their products

17. 3. Economic Protectionism and Tariffs – made things Worse
Tariffs – duties (money) collected by the government on goods coming into a country
Because the USA did not need the world’s raw materials as much as other countries, they became protectionist
Protectionist – government protected home industries from the competition of foreign goods by discouraging imports through high tariffs
Fig. 4-5 from p.82 in counterpoints
Answer questions on p. 82 regarding this cartoon for marks. (/10)

18. 3. Protectionism & Tariffs cont’
American protectionism caused other countries such as Canada to lose their export markets
American tariffs made Canadian wheat more expensive in the USA, so Canadian farmers suffered
In reaction, Canada also imposed high tariffs to protect its own industries and products (known as “tariff barriers”)
This cycle made the problem worse, as trade was restricted even further

19. 4. Reliance on Staple Product Exports
Canada’s economy depended heavily on a few basic products known as staples
i.e. wheat crops, timber, minerals
Economy did well – as long as other countries bought staple products

20. Staple Products cont’
– wheat farmers grew record crops, so could sell them at record prices
PROBLEM: the USA, Australia, and Argentina also grew record crops in 1929, so the competition for sales was extreme
Canadian farmers – left with large quantities of unsold wheat and prices dropped dramatically
Wheat prices
fell

21. 5. Dust Bowl – made matters worse
In addition: prairie farmers were faced with terrible droughts over several summers in a row – farmland turned into “Dust Bowls”

22. Dust Bowl – made matters worse
Inadequate rainfall  crops died – farming essentially stopped on Prairies
With no wheat to be shipped & no flour to be ground  railways & flour mills lost business
* Caused a chain reaction in many parts of the Canadian economy

23. Dust Bowl Images

25. 6. Economic Dependence on the USA
Because the Canadian economy depended so much on staples (#2), any decline in foreign economies hurt Canada
40% of exports sold to USA
Therefore – when US economy failed, Canadian economy followed

26. 7. Trade Collapse
Canada's efforts to get out of a recession by raising export tariffs only backfired due to competition from other countries and Canada's lack of variety in its exports
Led to a near halt in world trade

27. 8. International Debt after WWI
The USA lent money to foreign nations after WWI to help them out of debt, so:
Those nations came to depend on their ability to sell their products to the USA in order to raise $$ to repay loans
When the US turned to protectionist measures, international trade was reduced and those countries lost their ability to pay back loans
International trade
Reduced =
Could not pay back loans

28. Comparison with 2008 Economic Crisis

29. Understanding 2008 Crisis

30. Questions to answer in paragraph form:
Name and EXPLAIN the 8 main causes of the Great Depression discussed in this presentation.
What are some of the similarities between the causes of the Great Depression and the 2008 Economic Crisis?

31. Using Statistics in History
See page of counterpoints
In partners, look over the tables of information carefully and answer questions #1-4 on p. 81 for marks (/10)
You may hand one set of answers per pair; but be sure to put BOTH names on your paper. 