The Great Depression and the New Deal U.S. History

What is a recession?

A significant decline in economic activity lasting more than a few months.

What is a depression?

A severe long-term period of economic decline when unemployment rates are high, and GDP is low.

What is speculation?

Buying or selling stocks based on anticipated short-term price movements.

What are broker loans?

A loan that an individual or business gets from a broker

What is GDP?

Short for Gross Domestic Product: the sum of all things of value that a country produces

What is the FED?

• The Federal Reserve Bank

• Influences interest rates by controlling the rate at which banks can borrow from the FED

What is the Greater Fool Theory?

“I may be foolish for paying so much for this stock, but I’ll bet there’s a greater fool out there who is willing to buy it from me for even more”

What are interest rates?

The percentage of the amount of a loan that a lender charges for lending money

What was the “alphabet soup?”

A saying given to Roosevelt’s “new deal” because there were so many abbreviations on the acts passed that it resembled the alphabet.

What is deficit spending?

Government spending of funds raised by borrowing rather than taxation

What are keynesian economics?

Governments MUST work to manage the economy, especially in a downturn.

Why was speculation + borrowing so potentially catastrophic for the economy?

Caution towards buying and selling stocks is discarded, and people end up spending too much money.

How did the increased use of cars and electricity affect agriculture?

A lot of farmland that had been devoted to feeding wagon-pulling horses and mules was freed up, increasing farmland area

How did agriculture affect the economic slowdown?

Decline in demand is caused by overproduction (of farm products) due to farmland being freed up.

How did the extremely large income gap affect the economic slowdown?

Created overproduction because most of the population couldn’t afford what companies were producing.

How did the increase in interest rates affect the economic slowdown?

Makes borrowing cost more, so businesses invest less and people don’t buy as many big-ticket items, slowing economic activity.

How did overconsumption affect the economic slowdown?

More people were buying more than they could afford, but to do that they have to borrow money. However, borrowing costs were higher, making it harder to borrow.

What did the Hoover administration do to respond to the economic shutdown?

• Taxes

  • Cut taxes, but taxes are already so low it doesn’t really do anything

• Public works

  • Promises big public works projects, but never actually does it

• Tariffs

  • Smoot-Hawley Tariff

  • Hoover says its dumb, and economists beg him not to, but he signs it into law anyways

  • This puts tariffs on many countries, and they retaliate by putting tariffs on America

  • American exports decline drastically and goods become more expensive

List three programs from the new deal that offered direct relief to Americans

• The CCC (Civilian Conservation Camps)

  • Government hired young people to help develop parks, plant trees, and more

  • Paid many workers and provided them with free food and lodging

• The AAA (Agricultural Adjustment Act)

  • Government paid farmers to leave a portion of every land unseeded, helping raise farm prices so farmers get more money

• The FERA (Federal Emergency Relief administration)

  • Provided direct relief for those in need by sending money

  • Helped people buy food and other basic needs

List three programs from the new deal that tried to do a better job of regulating banking and/or the stock market

• Glass-Steagall Act

  • Reassures customers their money is safe by making banks act cautiously with the customers’ money

• The Federal Securities Act

  • Required corporations to provide complete information on all stock offerings

• Emergency Banking Relief Act

  • Authorized sound banks to reopen, insolvent banks (banks unable to pay debts) to remain closed, and gave banks in need loans to get going again

What are some arguments for the New Deal’s failure?

• Cost the government billions of dollars, and the economic growth was only very short term (it wasn’t worth it)

• Discriminated against black people and encouraged segregation

• Widows and women weren’t eligible for as much work as men, so they couldn’t make money (sexist)

How did the New Deal change the role of the U.S. government?

Keynesian economics – the government MUST be involved/manage/help the economy at all times, especially in depressions and recessions.

What are some examples of how the New Deal is still at work in the economy today?

• Wagner Act – Reduced violence in labor relations

• Securities and Exchange Commission – protect stock market investments of millions of small investors 

• Federal Housing Administration – Enabled a majority of Americans to become homeowners