Lecture 17 - Session171 Session 17 The Great Depression...

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Session 17   1 Session 17 The Great Depression During the 1920’s the large and growing disparity of wealth between the well-to-do and the middle- income citizens made the U.S. economy unstable. For an economy to function properly, total demand must equal total supply. In an economy with such disparate distribution of income it is not assured that demand will always equal supply. Essentially what happened in the 1920's was that there was an oversupply of goods. Those whose needs were not satiated could not afford more, whereas the wealthy were satisfied by spending only a small portion of their income. One obvious solution to the problem of the vast majority of the population not having enough money to satisfy all their needs was to let those who wanted goods buy on credit . The concept of buying now and paying later caught on quickly. By the end of the 1920's 60% of cars and 80% of radios were bought on installment credit. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled. DEFLATION? BANKS and  MONEY?
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Session 17   2 Why did the Great Depression Happen? 1. Stock Market Crash of 1929 2. Bank Failures (see the role of the US federal reserve in the great depression in last lecture) Throughout the 1930s over 9,000 banks failed. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans so there was no money supply in the economy. This exacerbated the situation leading to less and less expenditures. 3. Reduction in Purchasing Across the Board With the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25%. 4. American Economic Policy with Europe As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation. In the 1920's the United States was trying to be the world's banker, food
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This note was uploaded on 05/21/2010 for the course X 110 taught by Professor Xyz during the Spring '10 term at Louisiana College.

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Lecture 17 - Session171 Session 17 The Great Depression...

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