Economics and the Great Depression
Essential Question:
What are the basic principles of economics?
 Capitalism
o Also called a market economy or a free-enterprise system
o Adam Smith of Scotland
 Father of capitalism
 Three natural laws of economics:
 Law of self-interest
 Law of supply and demand
o Supply
 The amount of a good that businesses are
willing to offer for sale
o Demand
 The amount of a good that people are
willing and able to buy
 Law of competition
 Role of government:
 Laissez-faire
o Government should not interfere with business
 Government should
o Protect property rights
o Enforce contracts
o Allow free trade
 Other important principles:
o Scarcity
 Exists because of unlimited human wants and needs in a world
with limited resources
o Opportunity cost
 Exists because of scarcity
 What you give up for your economic choices
 Financial Planning
o Credit
 Allows you to buy now and pay later
 Problems with using credit:
 Debt
 Interest
 Some types of credit:
 Credit card
 Auto loan
 Mortgage
 Student loan
o Investment
 Putting up money in the hope of gaining a profit later
 Some types of personal investments:
 Savings account
 Stocks
o Shares of ownership in a company
 Mutual funds
o Spread investments across many companies
o Example of diversification
 The Great Depression (1929-1939)
o Causes:
 Natural business cycles
 High tariffs reduced international trade
 Bad investments
 Led to Black Tuesday: the stock market crash
 The Dust Bowl (1930-1936)
 Severe dust storms on the prairies
o Responses to the Depression
 President Herbert Hoover
 Laissez-faire
 Homeless moved to “Hoovervilles”
 President Franklin D. Roosevelt
 The New Deal
o Three goals (the three Rs):
 Relief
 Recovery
 Reform
o Sometimes called “Alphabet Soup”
o The Depression ended because of World War II