Components That Led To The Great Depression

Section A: 1B

The Great Depression is infamously known as the widespread economic plunge. There were many components that led to the Great Depression. In order to prevent another Great Depression it is important to take into account each factor that caused the Great Depression. To begin with, farmers were quickly expanding their farms and over producing crops, which caused the crops to be sold at a lower price. Since farmers did not make enough money to sustain their farms many of the farmers found themselves in debt. In order to prevent making the same mistakes farmers learned to monitor the amount of products they produce. In 1933 the Agricultural Adjustment Act was created to raise the prices of the products farms produced. Farmers were paid to not overproduce and it gained so much popularity that "By 1934, 936 out of 1,455 farmers completed corn and hog reduction contracts"(Lowe). In addition to the decline in agricultural production was the fact that many banks were also put out of business. Many banks closed and ultimately led to deflation. Deflation is when there is not enough money in circulation so prices begin to drop. Because of deflation many businesses had to lay off a fair amount of their employees. The United States learned that deflation only made matters worse as the unemployment rate increased substantially as about 15 million people were unemployed in 1932. To make matters worse, the Smoot-Hawley tariff caused exports to decrease and also decreased the number of jobs.

Roosevelt signed the Reciprocal Trade Agreements Act which lowered tariffs. Overall, the United States learned that government regulation is crucial to prevent the same economic downturn to