THE CAUSES OF THE GREAT DEPRESSION

WAIT… WHAT’S THE GREAT DEPRESSION?

THE GREAT DEPRESSION  Date:  Definition: a period of economic depression in the United States and the rest of the world  Economic depression occurs when an economy produces fewer goods and services and employs fewer people  Significance  Huge cost to human well-being  Transformed the role of the US federal government in people’s daily lives

FIVE LONG-TERM CAUSES OF THE GREAT DEPRESSION  Monetary policy  Overproduction  Inequality  Speculation  Trade Day 1 Day 2 Day 3 Day 4

DAY 1: OVERPRODUCTION AND INEQUALITY

OVERPRODUCTION  In your notes: Is it possible for an economy to produce too much stuff? What might be the positive and negative consequences of producing too much?

MARKET SIMULATION  Some of you are producers – your job is to sell golf pencils (provided by me) for as much profit as possible  Some of you are consumers – your job is to buy golf pencils from the producers for as little money as possible  Some of you are observers – be ready to answer questions on the worksheet

ROUND 1  One producer with one golf pencil to sell  Five consumers, with budgets of 20 cents each

ROUND 2  Two producers with five golf pencils each  Five consumers with budgets of 20 cents each

ROUND 3  Ten producers with ten pencils each  Three consumers, with budgets of 5-25 cents each

ROUND 4  Two producers with five golf pencils each  Ten consumers  Eight consumers get two cents each  Two consumers get 50 cents each

ROUND 5  Five producers with five golf pencils each  Ten consumers  Eight consumers get two cents each  Two consumers get 50 cents each  But consumers are going to get some bad news before buying begins…

SO WHAT DOES THIS HAVE TO DO WITH THE DEPRESSION?

BASIC ECONOMIC PRINCIPLES  Prices are set by the combination of supply and demand  When demand > supply, prices go up  When supply > demand, prices go down  The balance of power depends on the distribution of wealth  When wealth is equally distributed, individual crises (like tuition or medical bills) don’t hurt the economy much  When wealth is heavily concentrated, a crisis for the rich means a crisis for the whole economy

OVERPRODUCTION IN THE GREAT DEPRESSION  Agricultural overproduction  Farmers increased production significantly during WWI – and took on huge debts to do this  After WWI ended, demand fell sharply and farm prices crashed  Individual farmers kept production high, since profits were low  Similar problem in industry – factory methods made production increase, but eventually Americans ran out of money for new goods

INEQUALITY IN THE 1920S  In the 1920s, the rich became far richer while the poor became only slightly less poor  Made worse by tax cuts for the rich under Herbert Hoover  Result: limited demand for consumer goods

EXIT TICKET 1. How did overproduction make the American economy unstable in the 1920s? 2. How did inequality make the American economy unstable in the 1920s?