Ch. 8 Crash & Great Depression

Identify Andrew Mellon and the concept of laissez-faire. How did Mellon influence economic policy in the 1920s?

-President Hoovers secretary of the treasury, he de-regulated wall street while serving under harding and Coolidge. -Laissez-faire is the concept or policy of letting things take their own course. -Made his fortune in steel and banking. -He pushed for less taxation

Identify protectionism and evaluate the Smoot-Hawley Tariff. What motivated the tariff and how did it affect the economy according to most economists? Explain why economist Paul Krugman disagrees with the common interpretation.

-Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. The Smoot-Hawley Tariff not only hurt the global economy, it undercut international cooperation at a time when the world needed more constructive interaction among nations. American exports and world trade plummeted over 66% the first year, deepening the depression in all countries. -The tariff was motivated by Leaders and economists struggling to find a way out of the Depression. The tariff was made to try and increase import and export revenue. -Paul Krugman points out that because of the overall ongoing slowdown, world trade was declining at an even faster clip before Smoot-Hawley than after. He points out that the precipitous decline began in 1929, not '30 when the bill passed. Critics of Smoot-Hawley are confusing cause and effect, according to Krugman.

Explain what caused the Bonus Army March and how the government reacted.

-The Bonus army march was a March of WWI veterans demanding cash-payment redemption of their service certificates and their due payment bonuses. -The government passed a resolution authorizing the payments but the Senate blocked it. Hoover ordered them evicted, which the police and Army did.

Discuss the connection between the stock market and overall economy in the 1920s-30's. Explain how banks were connected to the market and the people. Analyze whether or not the Stock Market Crash actually caused the Great Depression. Identify and explain other factors like the Federal Reserve's monetary policy.

-The stock market crash lowered consumer spending, which caused panicking that worsened the ongoing recession, which contributed to a banking crisis. -This caused many people to go poor. -Many people were hesitant to put money back into the market after the stock market crash, so there was a lack of invested money. -The stock market crash lowered consumer spending, caused panic that worsened an ongoing recession, reduced corporations' assets and hurt their future prospects, and contributed to a banking crisis.

Summarize some of the primary causes of the Stock Market Crash of 1929, according to our textbook. Describe how a Perfect Storm was building in the American economy by October 1929.

-The stock market over-expanded after a period of wild speculation. Production couldn't keep up and unemployment had risen. -Saturation of the durable goods market and high consumer debt weren't the only problems. New home construction outpaced population growth by 25% in the 1920s. -On Monday and "Black Tuesday" the market continued to fall, closing down 36% from where it had been the previous mid-week. There were far more sellers than buyers at given prices. Some of the big bankers that were propping up the market the previous Thursday started liquidating their own portfolios, even as they increased loans to stave off a run on cash. The Federal Reserve banks (Chapter 5) madly bought up bonds to re-inject cash into the system. Fatigued brokerage staffs across the country spent days trying to sift through the high volume of trades.

Explain the causes of the Dust Bowl. How did technology and nature intersect in an unfortunate way for Plains farmers?

-the combination of better tractors, dropping wheat prices, and a worsening drought led to an unfortunate combination of technology and nature. -Loose topsoil blew around in massive dirt storms. -While already experiencing a drought, people said that ploughing fields brought rain by returning moisture to the air. This is wrong and all of the loose soil was what caused the dust bowl. -Better tractors, dropping wheat prices and worsening drought = dust bowl.

Define recession and explain the etymology of an economic depression.

A recession is briefly defined as a period of declining economic activity spread across the economy. -The etymology of an economic depression has changed overtime because, Prior to the Great Depression the United States' free-market economy was failing to ensure success and economic abundance for American citizens. By 1933 the United States' GNP had fallen to less than have of the GNP in 1929. Industrial production fell and businesses failed, leading to a loss of 13 million jobs for Americans during President Hoover's administration. There was an 80% decline in stock market values and banks throughout America failed. The loss of value in the stock market forced America into an extension period of recession - a depression. Though the stock market crash did not cause the Great Depression, it is considered to be strongly correlated to the Great Depression. The economic gains and increased number of jobs created by the United States' entrance into World War II propelled the United States out of the Great Depression. Although the reasons for the Great Depression lasting for such an extended period of time is debated among scholars, the leading opinion proposes it is because of the extended period where the demand for goods and services was reduced.

Explain what Herbert Hoover tried to accomplish with the Reconstruction Finance Corporation. Describe why the government didn't put people to work building interstate highways and broadening/dredging the St. Lawrence River in the 1930s.

An organization set up by congress to bail out the banking industry through government loans and investments and create public works projects to spur employment by investing in utilities and infrastructure.