Part 1 Great Dep.

The Great Depression

was a major economic crisis that affected the US and the world. dramatically changed the role of the federal government. It marked the birth of modern government spending and regulation.

Four main causes

- 1.Overproduction 2. Banking and money policies 3. Stock Market actions 4. Political decisions

Overproduction

-producing more goods than people are willing or able to buy.

Consumer goods

-Factories made more products than consumers could afford.

Agricultural products

-Farmers produced more crops than the market could absorb.

High production and demand

- encouraged businesses and farmers to keep producing, products went unsold, prices and business profits fell, Businesses cut production, reduced wages, or laid off workers.Unemployed workers had less money to spend, causing demand to fall further.

Soil erosion

- When wind or water moves soil away from the land.

Credit

- Buying something now and paying for it later.

Federal Reserve

- The U.S. central banking system, intended to help stabilize the banking system and influence money and credit conditions.

Bank reserves

- Deposits banks keep rather than lend out.

Fractional reserve banking

- A system in which banks keep some deposits in reserve and lend out the rest.

Bank run

- When many customers rush to withdraw their money at the same time.

Bank panic

- Widespread fear that banks will fail.

Bank failure

- When a bank cannot meet its financial obligations and closes.

Money supply-

The amount of money available in the economy.

Gold standard

- A system in which the money supply is tied to the amount of gold held by a country.

What went wrong during banking and money policies

- People bought goods on credit and to invest in stocks. Banks loaned out much of their depositors' money, investors lost money, Customers rushed to withdraw their savings.Banks did not always have enough available cash to meet withdrawals.Banks failed, and people lost savings and confidence. Businesses lost access to loans needed to operate and pay workers. Spending, production, and employment declined.

The Federal Reserve

was supposed to act as a lender of last resort to banks in danger of collapsing.

Why was confidence important?

-When people trusted banks, they were more likely to keep their savings deposited. When they lost confidence, they withdrew money and reduced spending, worsening the crisis.

Bull market

- Stock prices rise. Investors feel optimistic and expect to make profits.

Bear market

- Stock prices fall. Investors become pessimistic and expect losses.

Speculation

Buying stocks or property because you expect prices to rise and want to make a profit.

Pooling

- Investors working together to influence stock prices and potentially make profits.

Buying on margin

Purchasing stocks by paying only a small part of the price and borrowing the rest.

1929 Stock market crash

A sudden, major decline in stock prices.

Installment buying

Purchasing an item through a series of payments instead of paying the full price immediately.