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p. 5 Causes of the Great Depression

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Rachel Jasso

on 17 November 2016

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Transcript of p. 5 Causes of the Great Depression

Economics historically pass through good and bad periods that regularly repeat themselves. These up-and-down periods of business activity are referred to as the business cycle. The bad times are called depressions - characterized by business failures, high unemployment, and falling prices. The GREAT DEPRESSION was the worst depression in our nation's history. A variety of factors caused the economy to move from the prosperity of the 1920s to the severe depression of the 1930s.
Causes of the Great Depression
(Right-side) The 1920s had witnessed rapid economic expansion as manufacturers made and sold new products like cars, radios, and refrigerators. Many consumers, however, lacked the money to buy these goods. Manufacturers were soon producing more goods than they could sell.
Overproduction (left-side)
(Right-side) We talked about this in the previous unit... People bought stocks hoping to "get rich quick." This caused stock prices to keep rising. By 1929, stock prices had tripled since 1920.
Speculation (left-side)
(Right-side) In the 1920s, stocks could be purchased for a 10% down payment, called a
margin
. The rest was financed by a loan, and the buyer had to pay back the rest when the stock was sold.
Do you think this was a good idea?
Buying on Margin (Left-side)
(Right-side) If the stock's prices fell, the purchaser still had to pay back the whole price they had promised to pay. This wasn't a problem if stock prices continued to rise, but if prices fell, the people who bought on margin often didn't have enough of their own money to pay back the loss.
Shaky Banking (Left-side)
(Right-side) American Tariffs protected our markets, but they made it hard for producers to sell abroad since other countries retaliated by setting up high tariffs of their own. In 1930, President Hoover signed the highest tariff in U.S. History. The shrinking of world trade contributed to the Great Depression.
Restricted International Trade (Left-side)
(Right-side) Generally Banks collect money from depositors and then invest these funds in businesses. This lets the banks earn money to pay interest on deposits. Most bankers in the 1920s were honest and followed established banking practices. But some bankers made unsound investments and the government failed to regulate either the banks or the stock market. Consumers were also buying more than they could afford. This over-extension of credit made the economy very vulnerable.
How did all of these things lead to the Great Depression?

Don't forget to Answer your Essential Question at the bottom!!!
Think about it...
Exit Slip - Answer on a small sheet of paper and turn in as you leave - If one of these causes was removed from the equation, do you think the Great Depression would have still occurred? Which one & Why? Please have an intelligent, thought-out answer. :)
Please Summarize!
Full transcript