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Causes of the Great Depression

Causes of the Great Depression. Factors. An old and decaying industrial base: Outmoded equipment made industries less competitive, leading to reduced sales and increased unemployment. The overexpansion of farm production: As wartime markets disappeared, farmers maintained production levels.

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Causes of the Great Depression

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  1. Causes of the Great Depression

  2. Factors • An old and decaying industrial base: • Outmoded equipment made industries less competitive, leading to reduced sales and increased unemployment. • The overexpansion of farm production: • As wartime markets disappeared, farmers maintained production levels. • They produced more than they could sell causing prices to fall and prevent them from repaying loans. • The availability of easy credit: • As debt grew and people lost jobs, they were unable to pay off creditors which led to bank failures.

  3. Factors (cont.) • Unequal distribution of income: • A small percentage of Americans received most of the income. Industrial workers and farmers had little money. • Hoarding of money: • Individuals distrusted banks. Hoarding money in their homes constricted the money supply and stifled business expansion. • Stock market speculation and buying on margin: • Extreme confidence in the stock market led to poor investment choices. • Black Tuesday: October 29, 1929 • Buying on margin: Investors taking out bank loans to purchase stocks.

  4. Factors (cont.) • Bank failures: • Banks that had invested heavily in the stock market lost millions. • Panic led to runs on the bank. • Monetary and fiscal policies: • The Federal Reserve had kept interest rates low (encouraging borrowing) and tax policies perpetuated the unequal distribution of wealth. • Trade and regulatory policies: • High U.S. tariffs led to retaliatory tariffs by foreign countries. The government failed to regulate market speculation.

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