THE CAUSES OF THE GREAT DEPRESSION

WAIT… WHAT’S THE GREAT DEPRESSION?

THE GREAT DEPRESSION

Date: 1929-1939 Definition: a period of economic depression in

the United States and the rest of the world Economic depression occurs when an

economy produces fewer goods and services and employs fewer people

Significance Huge cost to human well-being Transformed the role of the US federal

government in people’s daily lives

FIVE LONG-TERM CAUSES OF THE GREAT DEPRESSION

Monetary policyOverproduction Inequality SpeculationTrade

Day 1

Day 2

Day 3

Day 4

DAY 1: OVERPRODUCTION AND INEQUALITY

OVERPRODUCTION

In your notes: Is it possible for an economy to produce too much stuff? What might be the positive and negative consequences of producing too much?

MARKET SIMULATION

Some of you are producers – your job is to sell golf pencils (provided by me) for as much profit as possible

Some of you are consumers – your job is to buy golf pencils from the producers for as little money as possible

Some of you are observers – be ready to answer questions on the worksheet

ROUND 1

One producer with one golf pencil to sellFive consumers, with budgets of 20 cents each

ROUND 2

Two producers with five golf pencils eachFive consumers with budgets of 20 cents each

ROUND 3

Ten producers with ten pencils eachThree consumers, with budgets of 5-25 cents each

ROUND 4

Two producers with five golf pencils eachTen consumers

Eight consumers get two cents eachTwo consumers get 50 cents each

ROUND 5

Five producers with five golf pencils eachTen consumers

Eight consumers get two cents eachTwo consumers get 50 cents eachBut consumers are going to get some bad news

before buying begins…

SO WHAT DOES THIS HAVE TO DO WITH THE DEPRESSION?

BASIC ECONOMIC PRINCIPLES

Prices are set by the combination of supply and demandWhen demand > supply, prices go upWhen supply > demand, prices go down

The balance of power depends on the distribution of wealth When wealth is equally distributed, individual crises (like

tuition or medical bills) don’t hurt the economy much When wealth is heavily concentrated, a crisis for the rich

means a crisis for the whole economy

OVERPRODUCTION IN THE GREAT DEPRESSION

Agricultural overproductionFarmers increased production significantly during WWI – and

took on huge debts to do thisAfter WWI ended, demand fell sharply and farm prices crashed Individual farmers kept production high, since profits were low

Similar problem in industry – factory methods made production increase, but eventually Americans ran out of money for new goods

INEQUALITY IN THE 1920S

In the 1920s, the rich became far richer while the poor became only slightly less poor

Made worse by tax cuts for the rich under Herbert Hoover

Result: limited demand for consumer goods

EXIT TICKET

1.How did overproduction make the American economy unstable in the 1920s?

2.How did inequality make the American economy unstable in the 1920s?