interwar - the great depression Flashcards
laissez faire
if it aint broke dont fix it
fend for yourself
government doesnt help
stocks market crashes as a result of:
over production and the laws of supply and demand
buying on the margin
everyone wanted to get in on the action often borrowing money to get some action
boom and bust
economies expand as money is generated
the idea is that if people earn money they will spend it on the thing that the society is making
the economy will continue to expand until the market/global forces stop it causing the economy to shrink seeing people earning less thus spending less
the business cycle
- prosperity - economy near full employment
period of high inflation - recession(slow down) - no new jobs/layoffs, as companies reduce production of goods and services
-ability to purchase is reduced
-buying power reduced because of inflation
cycle can break here
- recovery - production increases to meet increased consumer demand
depressions are prolonged recessions
prices of goods and services fall dramatically
over production
too much supply for demand
initially this was good as companies stockpiled goods(inventory)
however when inventory did not sell companies lost money and the stock value fell
the stock market
people used borrowed money to get a piece of the market
this is buying on the margin
over speculation inflated stock prices (increased demand for a limited product)
when companies profit reports fell short of the speculated gains stockowners began to sell
however there were no buyers
stock market and crash cycle
more production = lower cost for products = lower sales price and more supply
more supply = less demand = less profit = lower stock value
lower stock value = borrowed money disappears -> stock holder can make payments -> banks close = peoples savings gone
mass production and the depression
because companies were over producing their product would not sell therefore the company had lost money - thus the stockholder had lost money
stock holders (especially those who bought on the margin = borrowed cash) tried to sell their stock but NOBODY was buying
economic nationalism
buy local sell international
stop importing keep exporting
as recession grew worse the world government implemented tariffs to keep out foreign goods in the hopes that the protection would stimulate internal markets
problems with economic nationalism
doesnt work when everyone does it
the rest of the world closed their borders to canadian goods hurting the resource sector exporting companies(more money lost on the stock market)
with the recession people did not have the money to spend on extras so the multiplier effect was introduced
international debt
USA lost huge sums of money as foreign economies faltered( i.e. germany and russia)
this made the US banks call foreign loans further deepening the recession
banks lost more money
falling global wheat prices
as wheat prices fell around the world canadian farmers could no longer service their debts
banks began closing on the farm mortgages
multiplier effect
primary resource dependence
as the global markets faltered canada was hit hard due to its dependence on primary resources
as people lost money the demand for canadian resources dropped
unemployment
most families ran on single incomes
no safety nets
single resource areas hit hardest-wheat, fishermen
the american work force had no way to earn income
