Unit 11: Great Depression & WWII

Unit 11:Great Depression & WWIITime Period: 1929-19451Unit QuestionsWhat caused the Great Depression?How did people experience the Great Depression?Who was FDR and what was the New Deal?What caused WWII?Should the USA get involved in WWII?How do the two theaters of WWII compare?Should the USA drop the atomic bomb?What were the effects of WWII?Unit Question of the DayWhat caused the Great Depression?

The Great Depression was a worldwide event.

By 1929, the world suffered a major rise in unemployment.

The Great Depression was not the countrys first depression, though it proved to be the longest and most severe.

In the first four years of the Depression,

The U.S. Stock Market lost 90% of its value.

There are several explanations, but the most obvious causes are four:

1. Overproduction2. Banking & Money Policies 3. Stock Market Actions 4. Political decisions

There are several explanations, but the most obvious causes are four:

1. Overproduction2. Banking & Money Policies 3. Stock Market Actions 4. Political decisions

1. Over-production:

The roaring twenties was an era when our country prospered tremendously.

Average output per worker increased 32% in manufacturing and corporate profits rose 62%.

The availability of so many consumer goods, such as electric appliances and automobiles, offered to make life easier. Americans felt they deserved to reward themselves after the sacrifices ofWorld War I.10But in reality there existed:* Underconsumption of these goods here and abroad, because people didnt have enough cash to buy all they wanted* There still existed an uneven distribution of wealth and income.

Americas farms were overproducing, as well.During World War I, with European farms in ruin, the American farm was a prosperous business.

Increased food production during World War I was an economic boom for many farmers, who borrowed money to enlarge and modernize their farms.

The government had also subsidized farms during the war, paying high prices for wheat and grains.

When the subsidies were cut, it became difficult for many farmers to pay their debts when commodity prices dropped to normal levels.13So, to summarize it, HIGH DEMAND for consumer goods and agricultural products led to OVERPRODUCTION.

2. Banking & Money Policies

The uneven distribution of wealth didnt stop the poor and middle class from wantingto possess luxury items, such as cars and radios

Although wages were not keeping up with the prices of those goodsbuying on credit offer a solutions!

One solution to the problem was to let products be purchased on credit.

The concept of buying now and paying later caught on quickly.17By the end of the 1920s, 60% of the cars and 80% of the radios were bought on installment credit.

There had been credit before for businesses, but this was the first time personal consumer credit was available.18The Federal Reserve Board was created by Congress in response to the Banking Crisis of 1907.

The Federal Reserve was suppose to serve as a protective watchdog of the nations economy.

It had the power to set the interest rate for loans issued by banks.

In the 1920s, the Fed set very low interest rates which encouraged people to buy on the installment plan (on credit.)More buyers meant more profit for companies, so they produced more and moreso much that a surplus of goods was created!In 1929, the Fed worried that growth was too rapid, so it decided to raise the interest rates and tighten the supply of money.

This was a bad miscalculation!Facing higher interest rates and accumulating debt, people began to slow down their buying of consumer goods

20So,to summarize, banking policies which offered buying on credit first with lower interest rates, then raising those rates, caused a dangerous situation in the economy.

Buying on Credit increased personal debt.

Higher interest rates caused LESS DEMAND for goods.

3. STOCK MARKET ACTIONSThe Stock Market was an indicator of national prosperity.

The Stock Market growth in the 1920s tells a story of runaway optimism for the future.

Just as one could buy goods on credit, it was easy to borrow money to invest in the stock market; This was called margin investing (or buying on margin.)

25As business was booming in the 1920s and stock prices kept rising with businesses growing profits, buying stocks on margin functioned like buying a car on credit.

So what went wrong?

The crucial point came when banks began to loan money to stock-buyers. Wall street investors were allowed to use the stocks themselves as collateral. If the stocks dropped in value, the banks would be left holding near-worthless collateral.

27 The Crash:

Black Tuesday Oct. 29, 1929, the Stock Market crashed.

Over 16 million shares sold in massive selling frenzy.

Losses exceeded $26 billion.

Actually, the crash was by no means a one-day event.

A month earlier, trading increased rapidly as stock values dropped and people panicked, trying to sell their stocks before losing too much of their investments.29The Stock Market Crash of 1929 was only a symptom- not the cause of the Great Depression.

Buying on Margin was a risky market practice.

Bank loans for stock purchases was an unsound practice.

More Poor Banking Policies

With the loss of confidence in stocks, people began to lose confidence in the security of their money being held in banks. Customers raced to their banks to withdraw their savings. 32As banks closed their doors and more people lost their savings, fear gripped depositors across the nation.

Business also lost its money and could not finance its activities

More businesses went bankrupt and closed their doors, leaving more people unemployed

Causing unemployment to reach even higher levels.

4. Political Decisions:

The Depression could have been less severe had policy makers not made certain mistakes

Leaders in government and business relied on poor advice from economic & political experts...

But did Hoover really believe in a hands-off free market philosophy?

Hoover did take action to intervene in the economy, but it was too little too late-

Hoover dramatically increased government spending for relief, doling out millions of dollars to wheat and cotton farmers. 41Within a month of the crash, Hoover met with key business leaders to urge them to keep wages high, even though prices and profits were falling.

The greatest mistake of the Hoover administration was passage of the Smoot-Hawley Tariff, passed in 1930.

(It came on top of the Fordney-McCumber Tariff of 1922, which had already put American agriculture into a tailspin.)The most protectionist legislation in history, the Smoot-Hawley Tariff Act of 1930 raised tariffs on U.S. imports up to 50%. 43Officials believed that raising trade barriers would force Americans to buy more goods at home, which would keep Americans employed.

But they ignored the principle of international trade- it is a two-way street;

If foreigners cant sell their goods here, they will shut off our exports there!45It virtually closed our borders to foreign goods and ignited a vicious international trade war.

Europe had debts from World War I and Germany had reparations to pay.

Foreign nations were forced to curtail their purchase of Americans goods.

In summary, The Smoot-Hawley Tariff created trade wars and worsened world economic conditions.

Huge increase in taxes hurt companies and individuals.

1. Overproduction (responding to high demand for goods)2. Banking & Money Policies (low interest rates, buying on credit, raise in interest rates, low reserve rates for banks.)3. Stock Market Practices (buying on margin, bank loans for stock purchases)4. Political decisions (Smoot-Hawley Tariff, Increase Income Tax)

Exit TicketLook at your notes about the Causes of the Great Depression. Which cause might have had the biggest impact on the USA? Explain your reasoning.Chart115.95.64.44.12.92.921.921.92.62.22.8333.2443.82.83.93.14.83.4

ExportsImportsBillions of Nominal DollarsSmoot Hawley Tariff of 1930 and Trade Reform Act of 1934

Real GDPBillions of DollarsGDP96 ChainedPCEGross IGXZG/GDP%RGDPU Rate1929822.2625.793.6110.135.846.30.13390902463.21930751.5592.362.5121.329.640.30.1614105123-8.59888105088.91931703.6574.339.2126.624.635.10.1799317794-6.37391882916.31932611.852311.8122.419.329.20.2000653808-13.047185901124.11933603.351117.511819.430.40.1955909166-1.389342922525.21934668.3546.931.613321.5310.199012419610.7740759158221935728.3580.658.413722.740.70.18810929568.978003890520.31936822.5639.674.9158.923.940.20.193191489412.9342303996171937865.8663.593.6153.230.145.20.17694617695.2644376914.31938835.6652.661.9164.629.835.20.196984203-3.488103488119.11939903.568979.6179.731.436.90.19889319318.125897558617.21940980.7724.9110.9182.435.737.80.18598959938.544548976214.619411148.8776.7135.430336.746.50.263753481917.14081778329.919421360758.371.6711.124.142.20.522867647118.38440111424.719431583.7779.142.31059.920.153.20.669255540816.44852941181.919441714.1801.752.21195.621.655.70.69750889688.23388267981.219451693.3851.869104130.559.20.6147758814-1.2134647921.919461505.5956.9175359.766.549.10.2389239455-11.09076950333.919471495.1976.4168.6307.175.946.60.2054043208-0.69080039853.919481560998.1215.3328.959.854.40.21083333334.34084676613.819491550.91025.3164.3367.359.252.50.2368302276-0.58333333336.119501686.61090.9232.5367.451.8620.2178346978.74975820495.219511815.11107.1233.250063.564.50.27546691647.61887821653.319521887.31142.4211.1605.160.670.10.32061675413.9777422732319531973.91197.2221647.556.576.70.3280308024.58856567582.919541960.51221.9210.8602.959.372.90.3075235909-0.67885911145.619552099.51310.4262.1580.465.681.70.2764467737.09002805414.4

Graphs

Graphs822.2751.5703.6611.8603.3668.3728.3822.5865.8835.6903.5980.71148.813601583.71714.11693.31505.51495.115601550.91686.61815.11887.31973.91960.52099.5

Real GDP

Nom GDP822.2751.5703.6611.8603.3668.3728.3822.5865.8835.6903.5980.7

Real GDPBillions of dollars

Stock Market and monetary3.28.916.324.125.22220.31714.319.117.214.6

UnemploymentPercent

Sheet33.2822.28.9751.516.3703.624.1611.825.2603.322668.320.3728.317822.514.3865.819.1835.617.2903.514.6980.7

&APage &PUnemploymentReal GDPPercentBillions of DollarsGreat Depression

Billions of DollarsGDPCII: Fixed=> no inv changeI: NonresidXZGG: FedG: Nat DefTotal Fed: G outlaysTotal Fed: T receiptsDeficit (-)Total% Fed G/GDPTotal% Fed T/GDPTax Freedom DayAll T as % of all incomeGross Debt of all G as % of GDPFed Debt as % of GDPGross Personal S1929103.777.516.514.9115.95.69.41.70.93.13.90.83.03.84010.73.9193091.370.210.8118.64.44.1101.80.93.340.73.64.44311.53.2193176.660.75.975.32.92.99.91.80.93.63.1-0.54.74.04612.52.6193258.848.71.33.62.921.98.81.80.94.71.9-2.88.03.25715.457.328.9-0.4193356.445.91.73.12.521.98.72.30.94.62-2.68.23.56417.3-0.719346651.53.74.33.32.62.210.63.20.86.53-3.59.84.55916.175.344.30.6193573.355.96.75.64.32.8310.93.316.43.6-2.88.74.95715.52.6193683.762.28.67.55.833.213.15.51.28.23.9-4.39.84.75715.567.943.14.3193791.966.812.29.57.54412.851.37.65.4-2.28.35.963174.5193886.164.27.17.75.53.82.813.85.61.46.86.807.97.96617.963.741.91.519399267.29.39.16.13.93.114.75.91.59.16.3-2.89.96.86417.33.41940101.371.213.611.27.74.83.415.16.42.59.56.5-39.46.46517.865.544.54.51941126.78118.113.89.75.44.426.617.914.313.78.7-510.86.97520.311.71942161.888.910.48.56.34.34.662.854.151.235.114.6-20.521.79.07720.980.363.4291943198.499.76.16.95.43.96.394.986.584.278.624-54.639.612.19525.934.91944219.7108.57.88.77.44.86.9105.59794.691.343.7-47.641.619.99024.5104.596.2391945223119.810.812.310.66.77.593.284.282.192.745.2-47.541.620.39225.131.41946222.3144.231.125.117.314.1739.82925.355.239.3-15.924.817.79325.4128120.916.31947244.4162.33535.523.518.77.936.422.618.234.538.5414.115.89325.38.11948269.6175.448.142.426.815.510.140.624.218.429.841.611.811.115.48623.5105.698.314.11949267.7178.836.939.624.914.49.246.827.619.938.839.40.614.514.78222.3101950294.3192.754.148.327.812.311.646.92619.642.639.4-3.214.513.49124.7102.994.115.21951339.5208.660.250.331.81714.668.34539.345.551.66.113.415.29726.519.71952358.6219.75450.531.916.315.383.959.252.467.766.2-1.518.918.59726.582.974.320.61953379.9233.456.454.535.115.21690.864.45676.169.6-6.520.018.39726.480.471.321.31954381.1240.553.855.834.715.715.486.557.349.370.969.7-1.218.618.3922582.171.819.81955415.225969643917.617.286.854.94768.465.4-316.515.89425.780.669.419.5

ExportsImportsBillions of Nominal DollarsSmoot Hawley Tariff of 1930 and Trade Reform Act of 1934

October DJIA CloseBank FailuresM1GNP Price Deflator 1972=100U RateNom GDP%M1%P192296.1136721.26.7192388.5364622.32.41924104.0677523.351925156.5261825.23.21926150.3897625.41.81927181.7366925.532.43.31928252.1649925.732.84.21929273.5165925.832.83.2103.70.389105058401930188.07135224.831.78.991.3-3.8759689922-3.35365853661931105.43229422.828.916.376.6-8.064516129-8.832807571193261.9145620.125.724.158.8-11.8421052632-11.0726643599193388.16400419.125.125.256.4-4.9751243781-2.3346303502193493.056121.627.3226613.08900523568.7649402391935139.743225.227.920.373.316.66666666672.19780219781936177.197229281783.715.07936507940.35842293911937138.198329.629.314.391.92.06896551724.64285714291938151.738029.828.719.186.10.6756756757-2.047781571939151.887233.628.417.29212.7516778523-1.04529616721940134.61483929.114.6101.316.07142857142.46478873241941117.821645.831.29.91942114.072356.134.34.71943138.27572.636.11.91944146.53285.7371.21945186.6198.337.91.91946169.152104.843.93.91947181.813.91948188.623.81949189.546.11950255.015.21951262.353.31952269.2331953275.812.91954352.145.61955454.894.4

U rateAdj Corp Profit of Nonfinan corporatEffective Tax %Per. Cons Exp P-96National Defense in millionsPublic Welfare in millionsHighways in millionsPublic Education in millionsMTR range19298.913.512.381.5-25%dual income puts you into higher tax bracket: all taxpayers on table19306.510.811.85dual income puts you into higher tax bracket: all taxpayers on table19312.321.710.57dual income puts you into higher tax bracket: all taxpayers on table1932-0.9-33.39.32721125144-63%dual income puts you into higher tax bracket: all taxpayers on table1933-1-508.99dual income puts you into higher tax bracket: all taxpayers on table19341.546.79.4155390320174Revenue Act of 1934--mtr increase between $8-90,000 of income19352.9319.63dual income puts you into higher tax bracket: all taxpayers on table19364.926.69.729321705201884-79%Revenue Act of 1936--mtr increase income > $50,000.19375.525.510.07dual income puts you into higher tax bracket: all taxpayers on table19383.327.39.841041164500162dual income puts you into higher tax bracket: all taxpayers on table19394.928.69.75dual income puts you into higher tax bracket: all taxpayers on table1940833.89.831590158604189Revenue Act of 1940--mtr increase $6,000 < income < $90,000194113.356.410.4310-81%Revenue Act of 1941--mtr increase income > $0.194218.460.911.72265556027511019-88%Revenue Act of 1942--mtr increase income > $0.194322.760.812.8dual income puts you into higher tax bracket: all taxpayers on table194422.55613.538550317151223-94%Revenue Act of 1944--mtr increase income > 0$19451856.714.07dual income puts you into higher tax bracket: all taxpayers on table194614.559.315.075046126835520-91%Revenue Act of 194519473.920.951.716.62dual income puts you into higher tax bracket: all taxpayers on table19483.826.943.917.571607545352342dual income puts you into higher tax bracket: all taxpayers on table19495.924.338.317.4420.4-91%dual income divide income by two to determine tax bracket, MTR rise for income < $6,000 and between $16,000 and $38,000 and between $44,000 and $50,000 and between $70,000 and $80,00019505.330.954.717.661835524692470dual income divide income by two to determine tax bracket19513.335.160.418.852595325561885dual income divide income by two to determine tax bracket1952332.355.119.23481874264128022.2-92%Revenue Act of 1951--mtr for income > $019532.932.257.516.5535834266727dual income divide income by two to determine tax bracket19545.531.150.219.6849265436063920-91%MRT reduced19554.44149.319.7643472426880220-91%double income bracket if married filing jointly