Sohail Ahmed pd. 5

2. The Great Depression was the most severe economic depression in the history of the

United States.

a. Describe two causes of the Great Depression in the United States.

b. Show how each of three New Deal programs attempted to remedy problems that arose

during the Great Depression.

Several factors were involved in bringing about the Great Depression of the United States. Two such factors were the inflation of stock prices due to expansion of credit, and the lowered European purchasing power due to World War I debts. Agencies established to remedy these problems included the Securities and Exchange Commission, Social Security, and the Tennessee Valley Authority.

Expansion of credit allowed people of all economic standings to purchase large amounts of stocks on margin, that is, by only putting up a small amount of the actual purchasing price. This reckless buying led to a booming stock market that was based largely on numbers on paper rather on real wealth. When prices fell, investors would have to pay up a large amount of money for stocks that were now worth much less. Most investors therefore opted to sell their stocks, still sustaining damages. The widespread selling led to further decreases in prices, or the Great Depression. The United States, demanding the payment of war debts by European nations, unwittingly lowered the purchasing power of the European market for American made goods. American companies sustained damages from this overproduction of goods, lowering stock prices. In order to remedy current problems and prevent further crashes, the Securities and Exchange Commission was established to provide the public with in depth information about companies in the stock market so as to allow investors to make a fair judgment of what they were investing their money in. Social Security was set up to provide money to the unemployed and retirees, the folks hardest hit by the Depression. The Tennessee Valley Authority was an agency established to help a severely depressed part of the US recover from the depression. This agency built dams to provide cheaper power to residents of several states and also helped by providing jobs to thousands in the area.

Though the Great Depression was severe, ensuing action by the government in the form of economic programs and social welfare curtailed its effects to a degree and helped the United States recover from a dark period.