Causes of the Great Depression

Cause #3: Unequal Distribution of Wealth

- Between 1920 and 1929, the income of the wealthiest 1 percent of the population rose by 75%, compared with a 9% increase of the other 99%. - More than 70% of the nation's families earned less than $2500 per year, then considered the minimum amount needed for a decent standard of living. - Even families earning twice that couldn't afford many of the household products that manufacturers produced. - Economists estimate that the average man or woman bought a new outfit only once a year. - Scarcely half of the homes in many cities had electrical lights or a furnace for heat. - Only 1 city home in 10 had an electric refrigerator. - This unequal distribution of income meant that most Americans couldn't participate fully in the economic advances of the 1920s. Many people didn't have the money to purchase the flood of goods that factories produced.

Cause #4: Margin Buying

- MARGIN BUYING: buying stock w/ credit -Investing in the stock market increased in the 1920s because people were encouraged that they will make money off of buying stocks. -Margin buying creates artificial values of companies because people bought more stocks than they could really afford. - People could buy stocks on margin-10%down/borrow 90% - As long as the stock prices kept going up, the system worked.

Cause #5: Stock Market Crash

- Thursday, October 24,1929: people began to panic about the market decline. 1. Stock prices were high & people began to realize so they bought their own stocks with margin buying(which they can't really afford) 2. Stocks prices were to artificially high and they began to fall. 3. People were worried about loosing money so they rushed to the band to borrow money to pay off their stocks. 4. The banks could only supply enough cash for a limited amount of people, and soon banks went bankrupt. 5. Some people couldn't get money from the bank so they tried to pay the money off on their own and they lost all of their money. 6. When the people loose their money, they can't pay taxes and mortgages. 7. Economy crashes.

Cause #2: Underconsumption/Overproduction

-Changes in supply and demand helped bring about and lengthen the Great Depression. - The American farms and factories produced large amounts of goods and products during the prosperity before the depression. -Overconsumption is cause by new credit. - When people buy enough goods and supplies, they don't need to buy extra so they stop consuming. The farms and factories continue to produce as many products as before, which results in overproduction. *selling more of a product decreases the value.

Cause #1: Buying on Credit

-With this system, people could make a monthly, weekly payment on an item that they wanted or needed, but didn't have the money for. -Buying on credit quickly became popular and many people started to do it -Stocks prices began to increase

Causes

1. Buying on Credit 2. Underconsumption/Overproduction 3. Unequal Distribution of Wealth 4. Margin Buying 5. Stock Market Crash