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Causes of the Great Depression
Homburg
Inflation
• Most Europeans countries emerged from WWI with inflated currencies
• After German hyper-inflation, Europeans feared inflation as a source of social and political instability.
• Most European governments refused to run budget deficits when the depression struck
German economy
• 1914- German Mark was 5 to $1
• 1922- German Mark was 162 to $1
• End of 1922- Mark was 7000 to $1
• 1923- German Mark was 294,000 to $1
• End of 1923- Mark was 4.4 trillion to $1!!!
Definitions
• Gross Domestic Product (GDP)- refers to the market value of all final goods and services produced within a country in a given period.
• Recession- Decline in Gross Domestic Product (GDP) for two or more quarters
• Depression- Economic downturn where GDP declines by more than 10%
• The depression originated in the U.S. starting with the stock market crash of 1929. It quickly spread to almost every country in the world
• GDP declined by more than 30 percent from 1929-33
• Unemployment in the U.S. rose to 25%
• Crop prices fell by 60%
U.S. Stock Market Crash 1929
• Share prices were rising throughout the 1920s. People speculated prices would rise further
• Many people borrowed money to buy more stocks
• The market turned and people began panic selling
Agriculture Problems
• Agricultural problems- better farming and transportation led to increased supply and lower prices
• Tariffs often prevented the export of grain among European countries
• Farmers would borrow money to buy machinery and land, they could not make payments because of falling prices
GDP
Unemployment
• A recession is when your neighbor loses his job. A depression is when you lose yours. (Ronald Regan)
The Great Depression vs. The Great Recession
• The Great Depression – GDP declined by more
than 30 percent from 1929-33
– Unemployment in the U.S. rose to 25%
• The Great Recession– 8.4 million job losses– Unemployment in the
U.S. is 8.5%-15.6%– GDP declined by as
much as 2.9%
John Maynard Keynes