9. Causes of the Great Depression

 U.S. prosperity in the 1920s had been based to a large extent on the sale of houses and automobiles. Consumers for the first time could buy houses and cars on the installment plan, and they were eager to do so. 

These purchases created jobs for workers who built homes and cars, the furniture and appliances that went into new homes and the steel and other materials that were used to produce cars. 

Jobs were also created as business firms built new plants and bought new equipment to produce what consumers wanted. 

Governments built paved roads for the new automobiles and electric plants and water and sewage facilities to service the new households. 

The prosperity of workers in all these industries allowed them to spend a lot of money, thus providing income to other workers — income which they in turn spent to buy other goods and services. 

Economists call the spread of such new spending a multiplier effect — one person’s spending becomes income to another person, who in turn can spend more and add to the income of others.

List the effect for each cause 

1. Cause 
People bought cars and homes in big number 

Effect 
business expanding making more money 
2. Cause

With all the government and consumer spending led to an increase in demand for all different types of goods

Effect

the consumers buy more stuff the government hires more people its a multiply effect



But the multiplier effect can work in reverse. By the late 1920s, U.S. business activity began to slow down as the economy entered what began as a mild recession. Sales of homes and new automobiles began to fall. Business firms slowed their expansion of new plants, causing workers who made a living building plants or producing machinery to lose their jobs.

3. Cause 

The multiplier effect in reverse when business activity slows down


Effect 
when business goes down everybody suffers 

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