Chapter 8 Section 1 Causes of the Depression
Terms in this set (18)
Republican president during depression. An accomplished public servant, ran for the White House against democrat Alfred E Smith. Stressed the important of competition, but believed in voluntary cooperation between labor and management. When he became president an economic disaster was about to happen. He was Secretary of Commerce in Harding and Coolidge administrations and coordinated Belgium releif program during WW1
Practice of making high-risk investments in hopes of obtaining large profits.-often in stocks
October 29th, 1929. Stock market collapsed in the Great Crash. Billions of dollars were lost.
Failure of the American Economy. A period lasting from 1929 to 1941 in which the economy faltered and unemployment soared.
*First banks collapsed
*reduced consumer spending hurt businesses
*companies began laying off workers--or reduced their hours and pay
Causes of Great Depression
*over-production of crops
*contraction in money supply
*uneven distribution of wealth
*overspeculation in stock market
Effects of great Depression
*banks and businesses fail
*peronal incomes shrink
*countries inact high tarrifs to protect themselves from foreign competition, world trade declines
*American loans to Europe dry up.
Congress passed this tax to protect American products from foreign competition. They taxed foreign imports to such a level that they could not compete in the American market. The European countries put their own taxes on American goods. This casued the global economy to collapse, it hurt everyone.
what group did not enjoy the "boom" times of the 1920"s? Because there was less demand for crops and huge crop. Prices paid for crops fell dramatically. They also had bank debt for land and equipment like tractors. They lived largely on credit. They did not have cash to buy consumer goods.
Uneven distribution of wealth
60% had incomes under $2000 per year. The 1% wealthiest Americans earned the same as the bottom 42%. Problem was that the wealthy could not buy enough to keep the economy booming.
it was easy for people to get credit so that hid some of the economic problems--and cuased people to take on more and more debt.
reasons the depression went global (outside of USA and affect the world)
*Hawley Smoof Tarriff
*European countries depended on America for loans (from reparation WW1)
John Maynard Keynes
Economist who recomended the governments spend more money to keep people emplyed when the governemnt slowed. He said that for a nation to recovery fully from a depression, the government had to spend money to encourage investment and consumption
period of seemingly endless prosperity and wealth (except for farmers!)
the periodic growth and contraction of the economy. Hoover made the mistake of thinking the depression was part of a normal business cycle, that is why at first he did not do anything.
buying on installment
when you put a small percent down and make payments over a period of months to buy something
stock market where prices are rising, which encourages buying. This was the state of the market before the depression hit.
Caused by the stock market crash, and massive withdrawal. Over 20% of baks were closed, many states existed without a bank.
Federal Reserve System
It is the center banking system for the United States and it regulates the amount of money in circulation and in the 1920s cut the interest rates to stimulate economic growth. Once the depression hit they limited the money supply and discouraged lending. Banks didn't have the money in reserve to recover.