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The Great Depression: Causes Of The Great Depression

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Back track to the Great Depression, the 1920s’ was an era of progression based on social and political changes. At the time the country was just coming out of WW1 that occur two years prior and the country is looking to an era of peace and tranquility. During the 1920s era the country was facing an economic boom called the Roaring 20s. The 1920 was called the Roaring 20s due to the “new technologies like the automobile, household appliances” (Sullivan). Due to these new products consumer spending increase, and in return stimulated the economic. Every ting seems perfect until late 1929 and rather than benefiting from the economic growth and enjoying the new standard of living, people began to witness a huge decline in the economic referred to…show more content…
The 1929 stock market crash known as Black Tuesday was the result of economic imbalance that nobody noticed. The cause of this economic imbalance was none other than people buying stock on the Margin, Agricultural recession and the credit boom. To begin, one of the causes of the stock market crash was people buying on the margin. Buying on the margin is an legal act when people only pay a small percent of the shares like 10% to 20% and to cover the rest of their shares they would borrow the money from banks to cove the value of the stock. Doing it this way enables more money to be into the stock, as a result increasing the value all together. The process made people a lot of money and nobody was worrying about the aftermath. Though what they were doing was right in the eye of the law not a single person too to account what would happen when the prices for their stock fell until it was way too late. When the market crash all the investor lost all their money. Another effect of the stock market crash was due to the Agricultural recession. In the year of 1929, the American Agricultural sector was struggling to maintain its profitability. To explain, many “many small farmer were driven out of the business because they could not keep up with the new economic” (Pettinger). The reason this occurred was due to better technology…show more content…
To explain the crash of the stock market greatly reduced “American aggregate demand substantially. Consumer purchases of durable goods and business investment fell sharply after the crash” (Romer). The financial crisis made consumers and firms to stop spending money and start saving their money. Another aspect of the Great Depression was the banking crisis. The banking crisis began due to the financial crisis and that made consumer lose confidence in their banks and demand that their bank give them their money back. Banks, “which typically hold only a fraction of deposits as cash reserves, must liquidate loans in order to raise the required cash. This process of hasty liquidation can cause even a previously solvent bank to fail” (Romer). The loss of confidence in the solvency bank cause people to starting saving the money at home and that in return causes many banks to close and at this time the Great Depression was at full