Question
In a one paragraph response, identify the primary causes of the Great Depression. Remember to explain how each "cause" effected the economy. answer this only using what I provide with quotes and only what I provide
On Tuesday, October 29, 1929, often referred to as Black Tuesday, prices of stocks at the New York Stock Exchange fell rapidly. This stock market crash is considered to be the start of the Great Depression. But why did the stock prices crash so quickly?
Causes of the Crash
There was no single cause for the crash. A number of factors contributed to the economic disaster:
Lower rates and requirements: The Federal Reserve set interest rates artificially low and eased the reserve requirements—or the money financial institutions had to keep on hand—on the nation’s largest banks.
Increased money supply and investments: An increase in the country’s money supply convinced even more Americans of the safety of investing in questionable schemes.
Speculation: Investors made high-risk purchases they hoped would pay off quickly, and this became the norm.
Margin buying: One dangerous type of speculation was buying “on margin.” Investors would borrow money to make a small down payment on stocks, hoping to sell them at a much higher price before the remaining payment came due.
Market losses: The stock market experienced a brief downturn in September 1929 followed by market corrections of 11% on October 24 and 13% on October 28. To prevent additional losses, stockholders dumped their stocks as quickly as they could on October 29.
Effects of the Crash
The financial outcome of the crash was devastating:
On October 29, 1929, stockholders traded more than 16 million shares, and a lost more than $14 billion in wealth in a single day.
Between September 1 and November 30, 1929, the stock market lost more one-half its value, dropping from $64 billion to approximately $30 billion.
Banks, facing debt and seeking to protect their assets, demanded payment for the loans they had provided to individual investors. As a result, investors lost not only their stocks but also their life savings in a matter of minutes. And they were still indebted to the bank.
While only 10 percent of households had investments, more than 90 percent of all banks had invested in the stock market. Many banks failed due to their dwindling cash reserves.
Though the events on Black Tuesday were not the cause of the Great Depression, they did trigger the start of a recession that eventually grew into a full-blown depression in the United States and around the world.
Watch the “Causes of the Stock Market Crash” video to learn more about Black Tuesday. As you watch, think about how the stock market crash led to the Great Depression.
During the 1920s, the U.S. economy had undergone a period of expansion. Consumerism boomed, mainly due to the widespread availability of credit. Though there were some periods of recession during the Roaring Twenties, few anticipated the business cycle, or pattern of economic expansion and contraction, would contract so sharply at the end of the decade and into the 1930s.
Following the stock market crash, the country’s gross national product declined by more than 25 percent within a year, and wages and salaries declined by $4 billion. Unemployment tripled, from 1.5 million at the end of 1929 to 4.5 million by the end of 1930. Such widespread unemployment resulted in the loss of homes and forced many Americans to seek aid. Homelessness and bread lines became a reality for many.
Numerous factors contributed to this financial collapse. Examine the following table to learn more about these causes and their effects.
Cause
Explanation
Effect
Risky Investing Practices
Investors made risky investments and bought stocks on margin in the hopes of earning a quick payout.
When the stock market crashed, investors were unable to pay back the loans they had borrowed from banks to purchase the stocks.
Overextension of Credit
Businesses extended lines of credit to consumers through the 1920s, regardless of income level or ability to make payments.
Many consumers used credit to make large purchases they could not afford. After the stock market crashed, many people were unable to continue making payments on what they had purchased.
Overproduction
Production in many industries, including the agricultural sector, exceeded consumer demand prior to the stock market crash.
Many industries had laid off employees prior to the crash. As the depression deepened, fewer consumers could purchase goods. This led industries to lay off more workers, and in turn, further decreased consumerism.
Lax Government Regulation
The Federal Reserve lowered the amount of money banks were required to have on hand at any given moment. This led many banks to make risky investments with a larger percentage of the money people deposited.
When people went to withdraw their money, many banks did not have adequate funds.
Bank Runs
Investors, along with the general public, withdrew their money from banks by the thousands, fearing the banks would go under.
The more people pulled out their money in bank runs, the closer the banks came to failure due to lack of funds. Many banks ultimately failed, and countless Americans lost all of their savings.The Great Depression was not unique to the United States. Its effects were felt on a global scale. Many European countries had been suffering financially even before the Great Depression began. A post-World War I recession and continuing wartime inflation had hurt many economies. So did a decrease in agricultural prices, which made it harder for farmers to buy manufactured goods or pay off loans to banks.
At the same time, the U.S. government took measures to support its own economy. Congress put tariffs on imported goods to raise their prices to consumers. This was done in an effort to encourage people to buy American-made products. In turn, many other countries around the world embraced this practice of protectionism. Ultimately tariffs enacted by the United States and its trade partners caused more economic distress. For example, early on in the Depression, the U.S.'s 1930 Smoot-Hawley Tariff angered foreign trade partners, who raised their own tariffs in retaliation. This raised the cost of goods for consumers in all of these nations, deepening the international economic crisis.
A similar attempt to spur the world economy, known as the Hoover Moratorium, likewise met with significant opposition and little economic benefit. The moratorium was issued in 1931 and called for a halt to World War I reparations continuing to be paid by Germany to France, as well as forgiveness of Allied war debts to the United States.
Despite the unsuccessful nature of protectionism, other administrations before and after Hoover’s enacted similar policies. In many instances, protectionism in the form of tariffs has led to trade wars between the United States and other countries. Conduct a safe search on the Internet or look in your local library for more information about another instance of protectionism, past or present. As you research, take note of the following
On Tuesday, October 29, 1929, often referred to as Black Tuesday, prices of stocks at the New York Stock Exchange fell rapidly. This stock market crash is considered to be the start of the Great Depression. But why did the stock prices crash so quickly?
Causes of the Crash
There was no single cause for the crash. A number of factors contributed to the economic disaster:
Lower rates and requirements: The Federal Reserve set interest rates artificially low and eased the reserve requirements—or the money financial institutions had to keep on hand—on the nation’s largest banks.
Increased money supply and investments: An increase in the country’s money supply convinced even more Americans of the safety of investing in questionable schemes.
Speculation: Investors made high-risk purchases they hoped would pay off quickly, and this became the norm.
Margin buying: One dangerous type of speculation was buying “on margin.” Investors would borrow money to make a small down payment on stocks, hoping to sell them at a much higher price before the remaining payment came due.
Market losses: The stock market experienced a brief downturn in September 1929 followed by market corrections of 11% on October 24 and 13% on October 28. To prevent additional losses, stockholders dumped their stocks as quickly as they could on October 29.
Effects of the Crash
The financial outcome of the crash was devastating:
On October 29, 1929, stockholders traded more than 16 million shares, and a lost more than $14 billion in wealth in a single day.
Between September 1 and November 30, 1929, the stock market lost more one-half its value, dropping from $64 billion to approximately $30 billion.
Banks, facing debt and seeking to protect their assets, demanded payment for the loans they had provided to individual investors. As a result, investors lost not only their stocks but also their life savings in a matter of minutes. And they were still indebted to the bank.
While only 10 percent of households had investments, more than 90 percent of all banks had invested in the stock market. Many banks failed due to their dwindling cash reserves.
Though the events on Black Tuesday were not the cause of the Great Depression, they did trigger the start of a recession that eventually grew into a full-blown depression in the United States and around the world.
Watch the “Causes of the Stock Market Crash” video to learn more about Black Tuesday. As you watch, think about how the stock market crash led to the Great Depression.
During the 1920s, the U.S. economy had undergone a period of expansion. Consumerism boomed, mainly due to the widespread availability of credit. Though there were some periods of recession during the Roaring Twenties, few anticipated the business cycle, or pattern of economic expansion and contraction, would contract so sharply at the end of the decade and into the 1930s.
Following the stock market crash, the country’s gross national product declined by more than 25 percent within a year, and wages and salaries declined by $4 billion. Unemployment tripled, from 1.5 million at the end of 1929 to 4.5 million by the end of 1930. Such widespread unemployment resulted in the loss of homes and forced many Americans to seek aid. Homelessness and bread lines became a reality for many.
Numerous factors contributed to this financial collapse. Examine the following table to learn more about these causes and their effects.
Cause
Explanation
Effect
Risky Investing Practices
Investors made risky investments and bought stocks on margin in the hopes of earning a quick payout.
When the stock market crashed, investors were unable to pay back the loans they had borrowed from banks to purchase the stocks.
Overextension of Credit
Businesses extended lines of credit to consumers through the 1920s, regardless of income level or ability to make payments.
Many consumers used credit to make large purchases they could not afford. After the stock market crashed, many people were unable to continue making payments on what they had purchased.
Overproduction
Production in many industries, including the agricultural sector, exceeded consumer demand prior to the stock market crash.
Many industries had laid off employees prior to the crash. As the depression deepened, fewer consumers could purchase goods. This led industries to lay off more workers, and in turn, further decreased consumerism.
Lax Government Regulation
The Federal Reserve lowered the amount of money banks were required to have on hand at any given moment. This led many banks to make risky investments with a larger percentage of the money people deposited.
When people went to withdraw their money, many banks did not have adequate funds.
Bank Runs
Investors, along with the general public, withdrew their money from banks by the thousands, fearing the banks would go under.
The more people pulled out their money in bank runs, the closer the banks came to failure due to lack of funds. Many banks ultimately failed, and countless Americans lost all of their savings.The Great Depression was not unique to the United States. Its effects were felt on a global scale. Many European countries had been suffering financially even before the Great Depression began. A post-World War I recession and continuing wartime inflation had hurt many economies. So did a decrease in agricultural prices, which made it harder for farmers to buy manufactured goods or pay off loans to banks.
At the same time, the U.S. government took measures to support its own economy. Congress put tariffs on imported goods to raise their prices to consumers. This was done in an effort to encourage people to buy American-made products. In turn, many other countries around the world embraced this practice of protectionism. Ultimately tariffs enacted by the United States and its trade partners caused more economic distress. For example, early on in the Depression, the U.S.'s 1930 Smoot-Hawley Tariff angered foreign trade partners, who raised their own tariffs in retaliation. This raised the cost of goods for consumers in all of these nations, deepening the international economic crisis.
A similar attempt to spur the world economy, known as the Hoover Moratorium, likewise met with significant opposition and little economic benefit. The moratorium was issued in 1931 and called for a halt to World War I reparations continuing to be paid by Germany to France, as well as forgiveness of Allied war debts to the United States.
Despite the unsuccessful nature of protectionism, other administrations before and after Hoover’s enacted similar policies. In many instances, protectionism in the form of tariffs has led to trade wars between the United States and other countries. Conduct a safe search on the Internet or look in your local library for more information about another instance of protectionism, past or present. As you research, take note of the following
Answers
GPT-4o mini
The Great Depression was primarily caused by a combination of risky investing practices, overextension of credit, overproduction, lax government regulation, and bank runs which collectively destabilized the economy. Risky investing practices, including buying stocks "on margin," left investors unable to repay loans when the market crashed, leading to widespread financial ruin. Coupled with overextension of credit, where consumers made unaffordable purchases, this created a cycle of default as the stock market collapse rendered many unable to meet payment obligations. Moreover, overproduction across industries meant that supply exceeded consumer demand, prompting layoffs that further decreased consumer purchasing power, exacerbating economic decline. Lax government regulation allowed banks to invest deposits in high-risk ventures, leaving them ill-prepared for withdrawals during bank runs, which triggered bank failures and widespread loss of savings. Thus, these interrelated factors culminated in a catastrophic economic contraction, signaling the onset of the Great Depression.