Causes of Great Depression

1929 - 1941
 What is a depression?
• First what is a recession? A sustained
drop in economic activity – technical
indicator = two or more back to back
quarters of negative economic growth as
measured by the nation’s GDP
• Depression is a severe and long term
recession – more than three years
 Causes of Great Depression
1) Stock market crash 1929
2) Overproduction
3) Low wages
4) High tariffs
5) Too much credit
6) Farm prices went down due in part to
overproduction
 Stock Market Crash
• October 1929 – stock prices dropped by a
large amount for several days
• Investors lost more and more money
• Many lost all their money
• Bank failures – Why? Many banks had
money invested in market as well
• Unemployment dropped from 4% in 1929
to 9% a year later and 25% by 1932
 Overproduction
• Overproduction = too many goods and
services produced
• Low demand leads to fewer sales- People
did not need/want the goods and services
• Few sales leads to employees losing jobs
or reductions in wages
• Unemployed people have no money to
buy goods and services
 Low Wages
• Low wages leads to people having less
money to buy things
• This means less spending overall
• This means reduction of the nation’s
Gross Domestic Product (GDP)
 High Tariffs
• Tariffs = taxes on goods imported into the
United States
• Object of tariffs is to make domestic
products more competitive with foreign
products
• Unfortunately, high tariffs lead to tariffs
placed on our goods by foreign countries
• This leads to less US goods purchased in
foreign countries
 Too Much Credit
• Credit- buying things without actual money
• Debt- money you owe a person/store
• Buying on credit leads to debt
• Debt needs to be paid eventually
• People used credit to buy stocks which
was particularly bad
 Farm Prices Fell
• Because of overproduction, prices for farm
goods fell
• Prices continued to go down
• Result = farmers received little or no cash
for their farm products
• Farmers had food but no money to survive
• Foreclosure- banks took away their land
because they couldn’t pay their mortgage
 Fear and Lack of Confidence
• No Hope- Americans lost confidence in
themselves, their country, their future
• Fear and panic took over
 Effects of Great Depression
• Low production nation-wide
• Huge unemployment rates – instant poverty
• Lost housing
• Hoovervilles- homeless people all living together
• Hunger – finding food a constant challenge
• Bread lines- waiting in line for food from a social
organization
• Migrant workers- people who lost their homes or farms
and went west to California to work on farms
• Dust Bowl- drought (dry period) in the Midwest US that
caused farmers to be unable to grow crops