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What caused the Great Depression, and why
did it spread?
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Europe changed drastically after WWI
Imperial governments were gone
New countries emerged: Poland,
Czechoslovakia, Hungary, Yugoslavia, & the
Baltic States
Russia was in the middle of a civil war
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In Europe, first years after war were tough
Central Europe – Famine caused by wartime
blockade of food
Soldiers returning home from war faced
unemployment
Next 5 years spent rebuilding & recovering
from the war
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The Treaty of Versailles forced Germany to pay
huge amounts in reparations to France &
Britain
This slowed the recovery of their economy
Printed extra money to pay the debt, which
resulted in hyperinflation
Hyperinflation – A decrease in the value of
currency resulting from printing too much
money. Prices increase in the affected area, so it
takes more money to purchase things.
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America emerged as world’s greatest economic power
Britain & France owed the U.S. a large amount of
money – Bought war supplies on credit
Americans bought mass produced goods made in
American factories
Automobile was most important factor in prosperity –
Sold to Americans & Europeans
Americans invested overseas, especially in Germany
Women had more freedom (Voting, College) because
they worked in place of men during the war
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Stock market crash in New York sent world
economy into a Great Depression
Depression – Economic downturn in which a
large number of businesses fail & workers are
unemployed
Prices of stocks started falling, & people
scrambled to sell before they lost too much
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People who lost money quit buying goods
Banks & investors recalled loans from Europe –
Caused depression to spread worldwide
40,000,000 workers became unemployed
Farmers could no longer sell cash crops
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Prosperity was due to stock market & real estate
over speculation
Over Speculation – People spend money they
don’t have yet, assuming they will earn the money
from what they are buying
Overproduction – More goods were produced
than consumers could buy
Relationship of loans & debts between Europe &
America ensured the recession would spread
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Government leaders quit spending, tightened
credit, & cut off international trade
This made the recession worse
People had no security net, like unemployment
insurance & social security, if they lost their job
& savings
Franklin Roosevelt elected President in 1932 –
Created New Deal to try to provide jobs for
unemployed citizens