The Business Cycle
and
The Great Depression of the 1930’s


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With the stock market “crash” in October, 1929, the U.S. entered a period in its history known as the Great Depression. This lasted for almost the entire decade of the 1930’s, and really didn’t end until the U.S. became involved in World War II in the early 1940’s. What was the Great Depression? How did it happen? What was it like? How did it end? These are all questions we will be answering in this unit.

Let’s begin with the basic question: “Just what is a depression?” A depression is really just a normal phase of what economists call the business cycle. In fact, the U.S. has gone through a number of depressions in its relatively short history. So, onto the business cycle...

The economy of the U.S., the way the people of our nation get the things they need and want, is constantly changing. There are good times followed by bad times, but the bad times have always been followed by more good times. This cycle keeps repeating itself. It is like a big wheel that is constantly turning. An economist would call the good times a period of prosperity, and the bad times a period of depression. The period of time between prosperity and depression is known as recession, and the period of time between depression and prosperity is called recovery. Confused? Read on!

We still haven’t answered our main question, “What is a depression?” Before we do, however, let’s start at the top of the business cycle, where it’s nice, and work our way down to where it’s not so nice.

PROSPERITY:

  1. lots of business activity; a lot is being produced, and a lot is being bought and sold
  2. wages, prices, and profits are high
  3. unemployment (the number of people who can’t find work) is low
  4. there is a general “feeling” that things are good and will continue to be good

RECESSION:

  1. business activity begins to slow down; less is being produced, less is being bought and sold
  2. wages, prices, and profits begin to fall
  3. unemployment begins to rise
  4. there is a general “feeling” of uncertainty; people aren’t sure what is going to happen next

DEPRESSION:

  1. business activity is low; little is being produced, and little is being bought and sold
  2. wages, prices, and profits are low
  3. unemployment is high (many people are out of work and can’t find a job)
  4. there is a general “feeling” of gloom and hopelessness

RECOVERY:

  1. business activity begins to improve; more is being produced, more is being bought and sold
  2. wages, prices, and profits begin to rise
  3. unemployment begins to fall
  4. there is a general “feeling” that things are getting better

O.K., so now we know what a depression and a business cycle is. Let’s work with all of this information a bit before moving on...

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