Causes of the Great Depression Notes
FQ: What factors contributed to the causes of the Great Depression?
Why was there an economic
boom in the 1920s?




Economic Growth








Expansion of Credit







How did the Federal Reserve
cause the Great Depression?


Industrial strength.
o US was rich in natural resources
o US had a growing population so it did not have to export
all of its goods
World War I
o US lent money to the Allies and sold them arms and food
o While European governments were hashing out the end of
the war, we took over Europe’s trade markets (fertilizers,
dyes, explosives, and plastics)
Republican economic policies
New Industries, New Methods
o Henry Ford and other manufacturers began using mass
production to make products for the masses
o Advertising let Americans know about these new products
o Rich natural resources allowed manufactures to make these
new products using our own raw materials
o Installments plans allowed the masses to buy these new
products.
For 8 years, stock prices continued to rise.
For the first time, ordinary people could own stock.
Speculation and credit fueled the price increase of stocks.
Instead of cash payments, investors borrowed money from banks.
“Buying on the margin” meant you paid only 10% and borrowed the
90%.
Buying on the margin provided additional stimulus to the market,
forced prices higher, and introduced more people to the market.
Large investors combined money to make large purchases of stock
driving up the prices.
Small investors bought stock hoping to ride the price up and make
quick money.
When prices were high enough, large investors sold and reaped
huge profits, leaving small investors holding the stock.
Henry Ford and other manufactures began mass producing goods
for the “common man.”
Home building and cars represented the backbone of the US
economy.
Many Americans were buying cars and electric appliances.
New items were available through installment plans.
This new economy increased personal debt.
Economists felt the pattern of panic and recovery did not apply to
this new consumer economy
The Federal Reserve Bank developed an easy money policy which
enabled the expansion of credit.
The Federal Reserve Bank developed an easy money policy which
enabled the expansion of credit.
This means it was easy for banks to borrow money from the Federal
Reserve to keep their bank reserves in place.
How did the Stock Market crash
cause the Great Depression?







How did overproduction cause
the Great Depression?







How did banks cause the Great
Depression?



How did farmers cause the Great
Depression?






For 8 years, stock prices continued to rise.
For the first time, ordinary people could own stock.
Speculation and credit fueled the price increase of stocks.
Instead of cash payments, investors borrowed money from
banks. “Buying on the margin” meant you paid only 10% and
borrowed the 90%.
Buying on the margin provided additional stimulus to the
market, forced prices higher, and introduced more people to
the market.
Large investors combined money to make large purchases of
stock driving up the prices.
Small investors bought stock hoping to ride the price up and
make quick money.
Henry Ford and other manufactures began mass producing
goods for the “common man.”
Home building and cars represented the backbone of the US
economy.
Many Americans were buying cars and electric appliances.
New items were available through installment plans.
This new economy increased personal debt.
When construction and car sales began slowing in 1927, the
growing aviation, motion picture, and consumer product
companies were not large enough to pick up the slack.
Wealth was concentrated in the hands of a few people so the
purchasing power of most Americans was not very much.
The Federal Reserve Bank developed an easy money policy
which enabled the expansion of credit.
Most banks offered credit so Americans could buy new
consumer goods on installment plans.
Banks also loaned money to farmers to buy new mechanized
tractors.
Farmers mechanized and accumulated more debt to pay for
the latest farming innovation.
Output increased and crop prices fell.
Farmers did not make much of a profit and could no longer
repay loans to banks.
As a result, banks failed and farmers lost their farms.
The Dust Bowl in the Midwest prevented farmers from
growing crops so they also lost their farms because of an
inability to repay loans.
Many farmers and farm laborers left the country for the city
(especially California cities).