1
The Great Depression
In the US & globally
International Economy A & History B
Problem statement
Through the assignment I will account for the prelude of the Great Depression. Moreover, I will analyze how the economy as well as society reacted to the crisis. Lastly, I will discuss how the depression was felt not only in the US but all over the world.
Introduction
Method
Method
- Multiple sources (cross-checking)
- Historical method
- Economic methods & theories
- Theory vs. reality
The prelude of the Great Depression
Multiple factors played a role
Prelude of the Great Depression
Stock market crash
- Booming market in 1920s
- 4 millions Americans invested in the stock market 1929
- Buying on margin
- "Hoover bull market" 1920s
- Unreasonable values --> decline
- Collapsed October 29 "Black Tuesday"
Stock market crash in Wall Street
Bank failures
- Banks had invested/ lend to brokers to buy stocks
- People started to withdraw their deposits
- Run on the bank or bank runs
- Unable to liquidate assets to pay back depositors
- Chain reaction among banks in the whole country
- 6th of March 1933 "Bank holiday"
Bank
failures
Economic plunge
- Uncertainty and distrust in the economy
- Lost faith in sound economy
- Spending drops
- Demand-deficient / cyclical unemployment
- Chain reaction
Economic impact
Was the right economic policy applied?
The US situation at this point
Extreme decrease in GDP
High unemployment
Fall in money supply
Deflation
Economic policies
Contractionary fiscal & monetary policy
Expansionary fiscal & monetary policy
Reduce activity and growth
Increase activity and growth
Dependence & interconnection
- The US became major creditor after WW1
- Rebuilding war damages
- Germany and the UK most involved
- Single market tendency
- US AD decrease --> decrease import
- Dependent on each other in terms of trade
- Negative side of globalization
Global downturn
Was the right strategy applied?
Protectionist trade policies was introduced across the world
(commend market tendency)
Global strategy
The US 1930: Smooth-Hawley Tariff Act
Increased tariffs on foreign products of approximately 20%
Extremely devastating for the global trade
25 nations replied by raising their own tariffs on American imports
Protected domestic production
Hurt export
Conclusion
- Multiple factors played a role
- Optimism and heavy installment buying caused the stock market to reach unreasonable values --> collapse
- People lost faith & trust --> bank runs
- Depression impacted people of all social classes
- Poor conditions and low standards of living
- Intensified by fall in the money supply --> deflation
- Presumably eased if contractionary monetary & fiscal actions and protectionism had been avoided
- Consequences economically, socially, culturally, and mentally
- Close links between global economies