The Great Depression and Its Causes

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The Great Depression was a global economic crisis triggered by the 1929 stock market crash. It led to a banking crisis, international trade collapse due to the Smoot-Hawley Tariff, and the gold standard's role in worsening the situation. Recovery efforts varied, with the New Deal in the U.S. and the abandonment of the gold standard in some countries playing key roles.

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Roaring Twenties economic condition

Decade of prosperity and economic growth in the US before the Great Depression.

Black Thursday significance

Start of stock market crash in 1929, leading to the Great Depression.

Impact of stock market crash on investors

Many investors lost fortunes, public confidence in the economy was shaken.

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The Onset of the Great Depression and the 1929 Stock Market Crash

The Great Depression, a severe worldwide economic crisis, began in the United States after a decade of prosperity known as the Roaring Twenties. In 1929, the stock market, which had reached unprecedented heights, began to show signs of instability. The situation deteriorated rapidly in October, leading to a catastrophic sell-off. On Black Thursday, October 24, the market fell dramatically, and despite efforts to stabilize it, the decline continued with significant losses on Black Monday and Black Tuesday. The stock market eventually bottomed out in July 1932, having lost 89% of its peak value, devastating the fortunes of many investors and shaking public confidence in the economy.

Animated Wall Street scene in the 1920s with men in vintage suits and dark hats arguing in front of neoclassical building, vintage cars on the right.

The Banking Crisis and International Economic Collapse

The stock market crash precipitated a banking crisis in the United States, which had a ripple effect on the global economy. The collapse of the Bank of United States in December 1930, a large New York bank, was a pivotal moment in this crisis. It led to a loss of confidence in the banking system, resulting in widespread bank runs and failures. As banks closed, the supply of credit dried up, leading to a contraction in spending and investment. This banking crisis contributed to a sharp decline in economic activity both in the United States and abroad, as international trade and investment flows were disrupted.

The Smoot-Hawley Tariff Act and Its Impact on Global Trade

In an attempt to protect domestic industries during the economic downturn, the United States Congress passed the Smoot-Hawley Tariff Act on June 17, 1930. This legislation significantly increased tariffs on a wide range of imported goods. The act had the unintended consequence of reducing international trade as other nations retaliated with tariffs of their own. The resulting trade war exacerbated the global economic downturn. U.S. exports and imports both fell dramatically, which had a particularly adverse effect on industries that were dependent on international markets, such as agriculture and manufacturing.

The Role of the Gold Standard in Exacerbating the Depression

The gold standard, which pegged currencies to fixed quantities of gold, played a significant role in the spread and severity of the Great Depression. Countries on the gold standard were compelled to maintain high interest rates to protect their gold reserves, leading to deflationary pressures. Those that abandoned the gold standard, such as the United Kingdom and the Scandinavian countries, were able to devalue their currencies, which helped them to recover more quickly. In contrast, countries that clung to the gold standard, like France and Belgium, experienced deeper and more prolonged economic downturns.

International Responses to the Economic Crisis

In response to the economic crisis, many countries adopted protectionist measures such as tariffs, import quotas, and exchange controls. These policies were aimed at preserving gold reserves and protecting domestic industries but often led to a reduction in international trade and worsened the global depression. The countries that abandoned the gold standard earlier were able to implement more expansionary monetary policies, which facilitated their economic recovery. The duration and severity of the depression in each country were closely linked to its monetary and trade policies during this period.

Recovery from the Great Depression

The path to recovery from the Great Depression varied across countries and began in earnest in 1933. In the United States, the New Deal policies of President Franklin D. Roosevelt aimed to reform the financial system, provide relief to the unemployed, and stimulate economic recovery. However, it was not until the mobilization for World War II that the U.S. economy fully recovered, with unemployment rates dropping significantly as the demand for war-related production soared. Other countries' recoveries were influenced by a combination of factors, including their monetary policies, the timing of their departure from the gold standard, and their level of industrialization.

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The Great Depression and Its Causes

Concept Map

Summary

Outline

The Great Depression and Its Causes

The Onset of the Great Depression and the 1929 Stock Market Crash

The Roaring Twenties

Stock Market Instability

Devastating Effects on Investors and the Economy

The Banking Crisis and International Economic Collapse

Ripple Effect of the Stock Market Crash

Disruption of International Trade and Investment

The Smoot-Hawley Tariff Act and Its Impact on Global Trade

Protectionist Measures During the Great Depression

Unintended Consequences of the Tariff Act

The Role of the Gold Standard in Exacerbating the Depression

Deflationary Pressures and Economic Downturn

Recovery for Countries That Abandoned the Gold Standard

Learn with Algor Education flashcards

Click on each card to learn more about the topic

Q&A

Here's a list of frequently asked questions on this topic

Similar Contents

Explore other maps on similar topics

The Onset of the Great Depression and the 1929 Stock Market Crash

The Banking Crisis and International Economic Collapse

The Smoot-Hawley Tariff Act and Its Impact on Global Trade

The Role of the Gold Standard in Exacerbating the Depression

International Responses to the Economic Crisis

Recovery from the Great Depression

The Great Depression and Its Causes

Concept Map

Summary

Outline

The Great Depression and Its Causes

The Onset of the Great Depression and the 1929 Stock Market Crash

The Roaring Twenties

Stock Market Instability

Devastating Effects on Investors and the Economy

The Banking Crisis and International Economic Collapse

Ripple Effect of the Stock Market Crash

Disruption of International Trade and Investment

The Smoot-Hawley Tariff Act and Its Impact on Global Trade

Protectionist Measures During the Great Depression

Unintended Consequences of the Tariff Act

The Role of the Gold Standard in Exacerbating the Depression

Deflationary Pressures and Economic Downturn

Recovery for Countries That Abandoned the Gold Standard

Learn with Algor Education flashcards

Click on each card to learn more about the topic

Q&A

Here's a list of frequently asked questions on this topic

What event marked the beginning of the Great Depression and when did the stock market hit its lowest point?

How did the 1930 collapse of a major New York bank affect the global economy?

What was the effect of the Smoot-Hawley Tariff Act on international trade?

How did adherence to the gold standard influence the Great Depression?

What were some common international economic strategies in response to the Great Depression?

What factors contributed to the eventual recovery from the Great Depression?

Similar Contents

Explore other maps on similar topics

The Onset of the Great Depression and the 1929 Stock Market Crash

The Banking Crisis and International Economic Collapse

The Smoot-Hawley Tariff Act and Its Impact on Global Trade

The Role of the Gold Standard in Exacerbating the Depression

International Responses to the Economic Crisis

Recovery from the Great Depression