1. Causes of the Great Depression
Drop in industry: steel, textiles, mining, lumber, housing industry.
Overproduction of crops and inability to pay farm loans.
The availability of easy credit: living beyond their means.
Consumers buying less goods due to high prices and low wages.
Unequal distribution of income: the rich got richer, the poor got poorer. 70% of families earned less than $2,500 per year (poverty level).
NOTE: The collapse of the stock market did NOT cause the Great Depression!! Instead, the depression caused the stock market to bottom out.

2. Economic terms and ideas to know
Law of supply and demand:
A) Prices on goods increase when demand is high and supply of goods is low.
*Example: PS2 and PS3, fuel.
B) Prices on goods decrease when demand is low and supply of goods is abundant.
*Example: Trucks/SUV’s 4 years ago; current housing industry.

3. 1. Industries in Trouble
Key basic industries like railroads, textiles, and steel had barely made a profit during the 1920’s (post WWI).
Many industries overproduced goods and had a large supply to get rid of=lost $ on production.
Railroads were losing out to new forms of transportation (trucks, buses, and automobiles).
Mining and lumbering were no longer in demand after WWI.
Coal mining took a back seat to hydroelectric power, fuel oil, and natural gas.
The housing industry slowed down since less people were building houses. When housing slows, so do jobs in related industries, like cement, lumbering, furniture, landscaping, roofing, etc.

4. 2. Farmers
During WWI, prices rose and demand for crops such as wheat and corn soared. Farmers had planted more and taken out loans to buy land, seed and new equipment.
Demand fell after WWI, and crop prices declined by 40% or more.
Farmers boosted production in hopes of selling more, but this caused crop prices to decline even more.
Farmers defaulted on their loans, rural banks began to fail, and auctions were held to recoup some of the bank’s losses.

5. 3. Living on credit (debt)
Credit (installment plan)=buy now, pay later.
Must pay for the price of the purchased good + interest.
Credit was easily available and, so Americans racked up a large consumer debt.
Credit is more easy to use than saving cash for months or years to buy the desired product.
Many people had trouble paying off their growing debts.
Consumers had to cut back on their spending.
Others defaulted on their loans and had their goods repossessed by the creditors.

6. 4. Consumers have less $ to spend
Americans were buying less mainly because of rising prices, lower or stagnant wages, and over buying of goods on credit in the preceding years.
Factories overproduced goods, but the American consumers could not afford to purchase the goods that flooded the market.

7. 5. Uneven distribution of income
The middle and lower class wage workers got poorer and poorer.
About 3/4 of American families were earning less than $2,500 a year and were living below the poverty level.
Who is going to buy the modern goods flooding the American markets?