The Great Depression

Question 1

Eight causes of the Great Depression

Answer 1

1. Excess borrowing (private debt close to 100% of GDP).
   - Buying on credit (consumerism, personal debt).
   - Buying stocks on margin (5% of cost).
   - Overvalued stocks and “bubble” market.
2. Banks make risky loans (incl. to Europe).
3. Technology’s Effects:
   - Workers more productive, decline in jobs.
   - Efficiency created over-production of goods.
4. Concentration of Wealth
   - Fewer consumers
   - Slows economy
   - Leads to fewer jobs
5. Collapse of the Stock Market.
   - Did not cause the Depression but exposed weaknesses in economy.
   - Stockholders lost $40 billion.
6. Higher Tariffs (particularly Smoot-Hawley 1930).
7. Farm debts in 1920s (farms responsible for 25% of GDP).
8. Drought begins in Mississippi River Valley (1930), spreads through Midwest.

Question 2

Three early economic effects of the Great Depression

Answer 2

Collapse of Banks:
-9,000 bankrupt or closed.
-Depositors lost $2.5 billion.
Widespread unemployment.
-At bottom, 15 million, 25% of workforce.
Collapse of Farm Economy
-By 1932, farm income down 60%.
-One-third of farm families lose land.

Question 3

What was Hoover’s response to the Depression?

Answer 3

• He decided to let the economy heal itself, with minimum government interaction.
• Laissez Faire
• Self Help and Charity (non-government)
• Balanced budget
• Changed his mind
• “too little too late”