Where did All the Money Go? The Great Depression Mystery


Terms in this set (...)

What conditions in the economy led to the Great Depression?
Overproduction, decrease in demand for goods, stock speculation using credit, Federal Reserve policy decisions, tariffs that led to trade wars which reduced exports and imports.
What is the relationship between increases and decreases in employment, consumer spending, and the money supply?
When jobs are created, employment increases and so does people's income. They have more money to spend, to save, or to be taxed. The opposite occurs when employment decreases.
Trace the ripple effect when workers lose their jobs.
They buy less goods and services because they have less income. The businesses where they had spent their money now have fewer customers so they may have to lay off even more workers whose household income then declines also. Sometimes households use savings to buy what they want, but when they lose their jobs, they may have to use that money to purchase necessities such as food and housing.
Explain the interdependence of the various parts of a market economy.
All the parts of a market economy are connected to one another. When an event occurs in one part of the economy, other parts will feel effects eventually. What happens to in large numbers of people's jobs determines how much total income is available to be spent, saved and taxed in an economy.
Explain the impact of the Federal Reserve's policies in the 20s and 30s on the Great Depression.
In 1928 and 1929, the Federal Reserve tightened up on the money supply to dampen the speculation in the stock market. When investors began to lose confidence in the stock market when corporate profits declined, the ensuing sell-off of stocks dramatically reduced the money supply. The Federal Reserve System maintained a neutral policy rather than acting as the lender of last resort for the banks. Because of this policy, the Depression deepened making the economy worse.