Choose from the book - Essay Example

The collapse of the banks reduced bank loans leading to less expenditure than initial. The crash of the stock markets reduced the spending capability of individuals through fear of further economic woes. Unemployment and job losses led to a reduction of the purchasing power. Purchasing power is defined as the ability of the society to purchase goods and services. Increased purchases indicate the power of the society and improved welfare while reduced purchases indicate an ailing economy that needs intervention and support.

The reduction of purchasing power of the economy at the time was an indication of the reduction of income earning and creation in the country. The situation was made worse with the inability of the banks to offer loans that could improve the purchasing power. The failure to offer loans to the citizens also indicated the situation of the banks in terms of financial strengths. Later, several banks collapsed and with the collapse came massive losses to the citizens through loss of savings and investments.

The situation was so dire that banks' lost public confidence leading to the creation of the FDIC to offer support and security for individual savings. With such massive issues, the financial sector of the country was in shambles leading to the failure of the whole economy called the great depression. In addition, American economic policy changes as a result of the ailing economy. The government created the Smooth-Hawley Tariff to protect the American companies. The policy charged high tax for imports reducing the amount of trade between America and the rest of the world.

The Smooth-Hawley Tariff protected the country production companies from competition. However, the mode of protection led to the isolation of the country because International Corporation could not venture into the country due to the expensive nature of business operations. Drought was an indirect facilitator of the economic problems witnessed in the country. The serious drought occurred in the Mississippi valley, in 1930, leading to the sale of farm lands in order to remain afloat (Foner 90).

While not affecting the economy directly, it helped in the shaping of the economic perspective of the country, to create a financial problem in the area. The drought did not have a massive influence on the economy but helped facilitate the already worse economy to decline. The role of Franklin Roosevelt in economy improvement After the depression witnessed the country struggled to recover from the failure with minimal success until the election of Franklin Roosevelt. Roosevelt enacted several Legislations through congress in a bid to help industrial and economic recovery.

The creation of the National Recovery Administration was to foster operation between the government, business and labor in order to achieve success. During the first hundred days of his tenure, he instigated changes in the political leadership to solve the banking crisis with the main focus of the change to restore and not offer drastic change in the economy. The job losses and unemployment witnessed after the great depression had affected the lives of the citizens (Foner 121). In order to assist, the president instigated relief programs to support provision of basic needs to families and also help in spurring the economy.

The relief programs helped to reduce starving of the citizens