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Topics
1) Link the Roaring 20’s to the start of the Great Depression by focusing on three causes.
TIP: Cite the business cycle model
2) The New Deal as a solution to the Great Depression. Focus on three causes and three solutions. How would this solution solve
the economic problems caused by the Great Depression?
TIP: The end of WWI leaves Americans unemployed. If the government hires Americans to build road the same Americans will
spend save and invest. This will keep business producing.
Q’s Depression Summary
Many Americans encountered change during the Roaring 20’s. As soldiers returned home from the “war to
end all wars” the American people temporarily celebrated and then tried to forget about the conflict. Americans found a
new escape with the newly affordable Model T. The radio connected Americans with broadcasts and new
advertisements for products. Credit allowed the average American to purchase advertised items without realizing
increasing debt. Americans were dressing the same as many flocked to the new departments stores to purchase goods.
This consumerism united the American people. A common shared culture developed as Americans purchased goods
because of persuasive ads or were exposed to life in other American places by the radio. Many flocked to the stores in
the Model T that was only offered in black failing to realize the loss of individuality.
Businesses in America were willing to meet the new consumer demand. Ordinary Americans wanted goods
advertised but many found the cost of these items were not affordable. Credit solved the dilemma but ultimately
contributed to the collapse of the US economy. By offering easy accessible credit, many were allowed to purchase
goods without any way to pay off the newly created debt. For example, the Billik’s family has an income of twentydollars every month. Should this family charge one-hundred dollars worth of newly advertised goods? If we take tenmillion families similar to the Biliks all doing the same thing, businesses will find out that consumer demand is
increasing. The key here is the families are purchasing with credit and not actual money. This strategy will only work if
Americans can buy goods with credit for the rest of their lives without ever paying off their credit bills. Businesses start
to meet the new demand by producing goods. The sale of the Playstation 3 is a perfect example. Many Americans want
the machine but Sony did not meet consumer demand. If Sony produced more Playstations Americans would buy the
new units. What if a credit card company provided elementary kids with credit and Sony was going to produce units
based on the amount the elementary kids wanted to purchase? The kids would use the credit card and Sony would
produce. Would the kids be able to pay off their credit card debt assuming parents cannot help? This is the same
situation American families encountered. During the 20’s, families purchased with credit and business produced to
meet new demand. However, this demand was “fake demand” because it was based on money Americans did not have.
If Americans were not able to pay off their debt then banks would suffer as would stores that provided easily accessible
credit to poor Americans.
Eventually, Americans realized they would have to pay back their credit debts. The Bilik family was now
faced with a dilemma. They would have to stop buying wants and devote all cash to needs and credit debts. This means
Americans stopped buying goods. Now business managers are looking at demand and thinking Americans stopped
buying. If only one elementary kid wanted a PS3, Sony would take a huge loss producing millions of units. When the
American people stopped buying business was left with a surplus and started firing people. Now more Americans are
out of work because of business cut backs. We should also remember that WWI is over and some Americans are out of
work. The American people continue to panic as some go to the banks to take out money. Now more go to the banks
and eventually the banks run out of cash. The end result is simple. Americans no longer have money to purchase
anything and credit is no longer an option. Without money in the economy Americans have no cash to spend. Without
spending money, businesses have no reason to produce. Without business production jobs are lost. The economy hit
rock bottom.
The solution to the economic crisis was simple. Give money to Americans. Keynes an economists informs
the US President that the only way to move the economy upward is to give Americans money to spend. It’s simple.
You find one-thousand dollars on the floor and immediately think about the goods you can buy. What will you do with
the new money? Before you wanted the PS3 but did not have money. Now you have the money and will most likely
spend. Imagine giving one-thousand dollars to every American. If Americans save their money in the banks then banks
have money to lend which will result in spending. If Americans spend then the end result is spending leads to business
production. When credit was easily available the US government decided to take money out of the economy. This
resulted in less spending simply because Americans did not have any to spend. The New Deal solution was designed to
create jobs forcing American to spend, save and/or invest. Any of the previously mentioned actions would help the
economy move upward again. Now look up the WPA, TVA, PWA and any other New Deal program. What was the
goal?
Situation
If 80% without savings=If fired Americans will not have $ to spend
Surplus up wages down=Cut back production
Banks closing=Less money in the economy
Government goes to deflation=Less money in the economy
What did people do=Panic and stopped spending=business has less to sell
Credit & new ads=People but creating fake demand
Buy stock with credit=Must pay back even if stock goes down
WWI ends=Less jobs
2000 companies control 49% of economy=If 2000 fail then economy collapses