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The Great Depression and its Aftermath. By Maria Guida.

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The Great Depression and its Aftermath

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The great depression and its aftermath l.jpg

The Great Depression andits Aftermath

By Maria Guida


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“Great Depression [was a] worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world, sparking fundamental changes in economic institutions, macroeconomic policy, and economic theory. Although it originated in the United States, the Great Depression caused drastic declines in output, severe unemployment, and acute deflation in almost every country of the world.”

– Encyclopedia Britannica


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The US Economy before the Great DepressionEffects of World War I

  • During the first few months after the war, the economy declined, as many industries cut back on production

  • After this down period, the economy picked up as consumers purchased goods they were unable to obtain during the war

  • Exports to and imports from Europe decreased

  • Due to a decrease in imports the economy needed to make substitute goods

  • This lead to the creation of new industries and more jobs


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The Roaring Twenties

  • The 1920s is often called the “prosperity decade” because of rapidly increasing wealth, stability and optimism

  • The number of immigrants increased which provided more workers and allowed industries to expand

  • This shift to mass production made technology affordable to the middle class

  • Automobile, radio, movie, and telephone industry all grew exponentially

  • The stock market attracted European investors as the American economy seemed to offer better opportunities for profit


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What caused the Great Depression?

Keynesian

Monetarist


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Economic Theories

Keynesian

Monetarist

  • This theory argues that the Depression was caused by a lack of flow of the money supply

  • When people spend money, other people earn money and vice versa; the supply should be circular and constantly flowing

  • When people start hoarding money, this is what causes the economy to spiral downward into a recession and in this case, the Great Depression

  • The Depression was caused by the failure of the Federal Reserve to enact the proper monetary policies

  • They failed to enact the policies that would have prevented the recession from turning into a depression


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Causes of the Great Depression

  • Stock Market Crash

  • Bank failures

  • Monetary Policies enacted by the Federal Reserve

  • Debt deflation


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The Stock Market Crash of 1929

  • The beginning of the Great Depression: October 29, 1929

  • Stock prices collapsed and the Dow Jones fell

  • The United States fell into the Great Depression and the whole country suffered from this economic crisis


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Gross Domestic Product

Historical Statistics of the US: Millennial Edition. Carter, Susan (2006).


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Immediate Effects:Living in The Great Depression

  • The unemployment rate between 1931 to 1940 was always greater than 20%, reaching a peak in 1933 of 37%

  • Rural America was the most drastically affected

  • Crop prices dropped

  • Many farmers could not pay their loans

  • Families lost their savings

  • Thus people were not able to spend money to stimulate the economy


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President Roosevelt and the New Deal

  • President Roosevelt was inaugurated in 1933

  • He quickly moved to enact a plan for recovery called the New Deal

  • This legislation focused on 3 Rs: relief, recovery, and reform

  • Relief – give aid to the unemployed and poor and take action to stop any further deterioration of the economy

  • Recovery – institute programs that will help stimulate the economy

  • Reform – implement permanent programs to improve our economic system and prevent another severe depression

  • Through various programs and acts, the New Deal provided work for the unemployed, set labor standards and set a minimum wage


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The New Deal

  • Agricultural Adjustment Act – directly paid farmers for growing food

  • Federal Deposit Insurance Corporation (FDIC) – established to insure depositors’ money in banks

  • Social Security Administration – founded to ensure that the older citizens of our country would always have the means to survive

  • National Industrial Recovery Act was enacted to regulate industry in the hopes of stimulating economic growth

  • The Works Progress Administration – created jobs in construction and arts projects


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Effects of the Great Depression on the Rest of the World

  • The United States accounted for more than 1/3 of the world’s demand for products

  • European countries were greatly affected by the depression


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Other Countries Affected

  • Great Britain – unemployment rate increased, exports decreased, industry declined

  • France – had a more self-sufficient economy than Great Britain; tourism declined; German reparations stopped

  • Germany – sharp increase in their unemployment rate, did not receive loans from the United States to aid in their recovery from the war

  • Canada – unemployment rate increased, wages decreased, production decreased

  • South Africa – exports of agriculture products fell

  • Australia – very dependent on exports, unemployment rate increased

  • China – rural economy and agricultural exports declined


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What is a bubble?A bubble in economics results when products are traded with inflated values. For a while the economy is on an upswing, but when the bubble bursts, there can be severe consequences.

The Roaring 20s Bubble

The Dot-com Bubble

  • Time frame: 1920 – 1929

  • After World War I, the economy grew from an increase in industry and available workers. The 20s were a time of great prosperity and numerous industries made advances.

  • The bubble burst when the stock market crashed on October 29, 1929 causing The Great Depression

  • Time frame: 1995 – 2000

  • As the internet and other technologies grew rapidly, stocks became over-inflated with value.

  • The bubble burst causing technology stocks to plummet and the United States to fall into a recession


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How the Great Depression continues to affect our world today…

  • The dramatic effects of the bursting of this “bubble” have made important and lasting changes to our economic system

  • Many of the reforms brought on by the New Deal still hold in our society today

  • The recent burst of the dot com bubble further shows the effects of overvalued products

  • Many economists draw parallels between the Great Depression and the 2008 housing crisis

  • The Great Depression may have been the worst depression the world has ever experienced, but it did show us just how unpredictable the market can be and it created the changes our country needed to have a more stable economy


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