Question

While economists agree on the major factors that either initially caused the Great Depression or that made it as deep and long as it was, there has been a never-ending debate about exactly how important each element was. Below are six of the primary factors that made the Great Depression a lot worse.

For each of the six, DRAW a graph (so draw 6 graphs in total) indicating the impact each would have had on the US economy. WRITE next to each graph what would happen GDP and to the price level as a result.

Causes of the Great Depression

1 - Oct 29, 1929 "Black Tuesday" - The US stock market had started sliding down in September and there was a milder panic 5 days before, but on Oct 29 the market plunged 12% in one day. This crash wiped out many people's life savings and many firms filed for bankruptcy. The Federal Reserve had been warning people about irrational exuberance and rampant speculation for 4-5 years before.

2 - Bank collapses - 700 banks failed in 1929 and 3000 more in 1930. In 1932, a new banking panic led to the loss of more than 1/3 of all banks in the country.

3 - The Smoot-Hawley Tariff - In 1930 Congress raised import tariffs to record levels in an attempt to protect US jobs. However, this sparked retaliatory trade measures from European countries. Over the next 4 years our exports dropped by 2/3.

4 - Drought hit the plains states starting in 1930 and continued with dust storms in 1931 through 1939. By the time normal rainfall resumed, 35-125 million acres had lost its topsoil and could not be used for farming the way it had been.

5 - In response to all this, the Federal Reserve tightened the money supply in 1929, 1932, and 1937. The tighter money also caused to deflation, which made it even harder for homes and firms to repay their debts, and made the banking collapses and tariff impacts worse.

6 - Presidents Hoover and Roosevelt and Congress enacted a large number of programs to try to fix the economy. Some were deemed unconstitutional. Some probably helped. Others backfired and made things worse. You could identify some particular policy errors that made it much harder for the market to fix itself.

Answer 1

1 - Oct 29, 1929 "Black Tuesday" - The US stock market had started sliding down in September and there was a milder panic 5 days before, but on Oct 29 the market plunged 12% in one day. This crash wiped out many people's life savings and many firms filed for bankruptcy. The Federal Reserve had been warning people about irrational exuberance and rampant speculation for 4-5 years before.

Black Tuesday was the fourth and last day of the stock market crash of 1929. It is regarded as the end of historic prosperity during which standards of income has increased. On October 29, 1929 it is said that Investors traded a record 16.4 million shares. There was almost a loss of $14 billion on the New York Stock Exchange which is equivalent to net-worth of 206 billion in 2019 as per current dollar price. Black Tuesday is further explained as sellers traded nearly 16 million shares in New York Stock exchange and Dow Jones Industrial average fell by 12%. Black Tuesday is regarded as the beginning of the great depression

2 - Bank collapses - 700 banks failed in 1929 and 3000 more in 1930. In 1932, a new banking panic led to the loss of more than 1/3 of all banks in the country.

In 1933, half of America’s banks had failed, and unemployment approached 15 million people, or as economists define as 30 percent of the workforce. As Economists were expecting expansion in money supply in 1930 and 1931, lower interest rates, and easier credit. Hence opposite action by the Federal Reserve plunged an economy to starve for credit deeper into depression as banking system dependent on U.S. loans, went bankrupt.

Pictorial Graph- Representing Bank Collapse

Notes – Represented Through Bitmap Image