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Causes of the Great Depression - Coggle Diagram
Causes of the Great Depression
The Wall Street Crash
Occurred in late 1929, beginning on the 24th of October 1929.
During the later part of the 1920s, canny stock investors realised that the boom would crash at some point soon, so they sold their shares and left the business. However, this led to mass panic abou the stock market value as people desperately tried to sell their shares.
This culminated in the Wall Street Crash, because people lost confidence in shares, leading to their prices falling dramatically.
Overproduction/underdemand
Because there was more supply than demand, prices were driven down in the oversupplying industries.
People lost their jobs once it became clear that there was not much demand for the goods in the industries they worked in.
Protectionism
This was the name for the tariffs introduced by Republican politicians during the 1920s, which taxed foreign goods imported into the US, encouraging people to buy goods made in America.
Initially this was successful and boosted the economy, but other countries introduced tariffs of US goods in retaliation, so the boom could not last forever. Once the American market was saturated, no further growth could occur internationally.
Declining industries
Many industries grew during the 1920s, but many were also overtaken by more modern technologies. These industries created further instability in the economy, and also increased unemployment as workers were laid off.
These industries were often the ones oversupplying to underdemand.
Underlying Poverty
Made the economy look like it was doing much better than it actually was - a small number of wealthy investors invested large amounts of money in the stock market, which boosted it. This created falsely placed confidence in the American stocks, even though many people could not enjoy the boom benefits.
Unfair wealth distribution
A large portion of the population was living in poverty, so was extremely vulnerable to economic instability.
Made the economy unstable
Laissez-faire attitudes of government
This meant that the government did not interfere very much in economic matters, and did not get involved in the stock market. If they had, they might have been able to set up better protection against an economic crash.
Because the stock market was so unregulated, many people ended up getting involved in investing without knowing what they were doing.
US banking and finance situation
During the 1920s the banks were largely unregulated, and they lent money irresponsibly. This meant they could not cope with the crash, because while many people tried to take their money out of banks, those banks didn't have their money - it was with other people who couldn't pay back their loans.
When people couldn't pay back their loans, banks took their houses and other assets, which added to the social crisis.