What Is the Great Depression?
The Fed dates the start to August 1929 and calls it the longest and deepest downturn in US history.
Free lesson
Video coming soon. The lesson video will appear here once it is published on YouTube.
In this lesson you learn to
- Place the Great Depression in time and name the events that started it
- Describe its scale with sourced numbers on output and unemployment
- Name policy responses and the lessons drawn from them
Check yourself
Think about each question, pick what you would answer if you like, then select “Show answer” to see the solution and why. Nothing is graded or sent to us. Example numbers are worked examples, not predictions.
1.According to the Federal Reserve, when did the Great Depression begin?
The Fed dates the start to August 1929 and calls it the longest and deepest downturn in US history.
2.True or false: the 1929 stock market crash alone caused the whole Great Depression.
The crash is easy to picture, so it gets the blame, but the downturn began earlier and deepened with bank runs and shrinking money.
3.About what share of US workers had no job in 1933?
Unemployment rose from about 3 in 100 in 1929 to about one in four in 1933. Other contemporary estimates differ somewhat.
4.In 1930 alone, how many US banks shut their doors, according to the FDIC?
The FDIC counts 1,350 bank closures in 1930 and about 2,300 in 1931.
5.From late 1930 to early 1933, by about how much did the US money supply fall?
The Fed records a fall of nearly 30 percent in the money supply, with prices falling similarly.
6.What is a bank run?
A bank keeps only part of the deposits in the vault and lends most of it out. When too many people want their money back at once, that rush is a bank run.
7.Worked example: Leo earns 100 a week and owes a fixed 1,000. Prices and wages then fall by a quarter, so a week of pay is 75. How many weeks of pay is the debt now?
The debt stays 1,000 while pay falls to 75 a week: 1,000 / 75 is about 13.3 weeks, up from 10. The numbers are a made-up example.
8.True or false: when prices fall, fixed debts shrink in the same way.
Irving Fisher described this loop of debt and falling prices in 1933. In the worked example, the debt rose from 10 to about 13 weeks of pay.
9.From 1934, deposit insurance in the US covered deposits up to how much per depositor?
Deposit insurance began in 1934 with a limit of 2,500 dollars per depositor.
10.In 1934, how many insured US banks closed?
After deposit insurance began, only nine insured banks closed in 1934, compared with 1,350 in 1930.
11.Which statements belong to the chain of events described in the video? Select all that apply.
Several answers can be correct.
The video describes a chain: bank runs, shrinking money, falling prices, and heavier fixed debts. The crash alone is called a myth.
Sources (5)
- Federal Reserve History: Gary Richardson, "The Great Depression" (Stand 22.11.2013)
- U.S. Bureau of Labor Statistics, Monthly Labor Review 1948, Technical Note (Stanley Lebergott): "Labor Force, Employment, and Unemployment, 1929-39: Estimating Methods", S. 50-53
- FDIC: A Brief History of Deposit Insurance in the United States, Kapitel 3 (William Isaac)
- Irving Fisher: The Debt-Deflation Theory of Great Depressions, Econometrica 1(4), Oktober 1933, S. 337-357
- Eigene Berechnung (Quoten aus q02; synthetisches Lohn-Preis-Beispiel)
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