Causes Notes
FQ: What were the causes of the Great Depression?
Why did the 1920s economic policies cause to the Great Depression? / · Republicans were pro-business, cut taxes, instituted a high tariff, and relaxed regulation.· Stock speculation
· Easy credit
· Economists felt the pattern of panic and recovery did not apply to this new consumer economy.
How did the Federal Reserve cause the Great Depression? / · 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? / · 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.
How did overproduction cause the Great Depression? / · 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.
How did banks cause the Great Depression? / · 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.
How did the slowdown of international trade cause the Great Depression? / · Because of World War I, European businesses struggled.
· Because of World War I, Europeans did not have money to buy consumer goods.
· The US demanded that foreign debts be paid either in dollars or in gold.
· This request made it harder for Britain and France to pay their loans to us especially when Germany defaulted on their payments to Great Britain and France.
· US protective tariffs made this worse because European goods cost more as a result.
How did farmers cause the Great Depression? / · 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).
Conclusion: (Please include a 1-2 sentence answer for each of the questions listed on the left side of your Cornell notes. Please include the number for each section in your answer.)