What were the causes and effects of the Great Depression? Long Term Causes and Short Term Sparks.

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What were the causes and effects of the Great Depression? Long Term Causes and Short Term Sparks

Long Term Causes Income Inequality Easy Credit (“Buy now, pay later!”) Overproduction of Goods (Multiplier Effect) Government Economic Policy (laissez faire, Hawley Smoot Tariff) Speculation (“Black Tuesday” spark)

Multiplier Effect

Government Economic Policy (or lack thereof) “The chief business of America…is business”---Coolidge laissez faire policies (Cooperation over Regulation) Little/No regulation of banks/stock market Low taxes Low interest rates – Banks lend more to businesses – Public and industry believe in boom (More debt) Hawley-Smoot Tariff

“Get Rich, Quick!” Speculation Investing based on price changes, not company’s value What is a stock? Share (partial ownership) of a company What is a stock market? Where buyers and sellers determine prices to exchange stocks (e.g. NYSE-Wall St., NASDAQ, etc.) Stocks are risky (no guaranteed return) Objective: “Buy low, sell high!” to make a profit 1920s: Invested savings and borrowed on margin (up to 90% ) – Dow Jones Industrial Average (based on NYSE) 30 largest and diverse U.S. companies One of popular indicators of stock market’s health

Short-Term Spark: October 29, 1929: “Black Tuesday” Stock Market Crash  Demand  Prices Investors sell to minimize loss (Sale Price < Purchase Price= Loss) November: Investors lost $30B (amount U.S. spent in WWI)! 1932: 80-90% of market lost

Effects of the Great Depression ECONOMIC 1.Bank Runs lead to banks failures: 9,000, 9M svgs. accts 2.Businesses Fail: 100K, GNP (U.S. goods/services) down 50% 3.Massive Unemployment: 1929: 3%, 1933: 25% 4.Global economies suffer: trade collapses by 40% SOCIAL: hardship, homelessness, hunger POLITICAL – New Deal: Federal government intervention (US) – Welfare Capitalism (Canada, France, Britain) – Totalitarianism (Germany, Italy, Japan, Soviet Union)