the Great Depression as Part of the Business Cycle
             The exact causes of the business cycle is not an exact science, and often causes problems in economics. A depression is said to be caused when wages or prices fall to reach their market clearing price, and when the governments intervene by changing interest rates. In this overview of the Great Depression I will discuss different causes and cures used.
             Many feel that the major cause of the Great Depression was the Federal Reserve Board. The Fed was originally created in 1913 to help prevent panics, like the one that occurred in 1907. The big banks wanted government security and protection and in turn withstood government regulations. The American people were investing so much money at that time because of the low interest rates. Because of this the money supply in America rose about sixty percent. Americans over extended themselves to take advantage of the soaring stock market. In 1929 the Fed realized that the current policy could not stay forever and started to raise the interest rates. The stock market crashed and the bank panics started again. Over the next few years the Fed would be forced to allow the money supply to contract by one third.
             Another reason of the Depression was people hoarding money because of the fear they had about the banks. Hoarding money is not the same as saving money because once deposited into the banks the money is lent out to someone who spends it, thus keeping it in cycle. At the time of the depression America had a one hundred percent gold standard for the money in circulation. Taking money out of circulation caused prices and wages to drop in response.
             In a free market nothing would be done and the market would work itself out. Businesses would lower their prices accordingly until people start buying more. Hoover and FDR chose to use a mixture of policies to help the country out of the depression. Hoover, who was accused of being a "do-noth...