How Did The Stock Market Crash Affect The Great Depression

The stock market crash is one of the reasons for the Great Depression. According to Temin, the stock market crash had a minor role to play in the origin of the Great Depression. Though the stock market crash decreased family wealth, and thus decreased consumption, but this effect was not very large since the propensity to consume out of wealth was not very high during the 1920s.
Table 2: Economic Statistics of the Great Depressions for the U.S.
Year GNP, 1972, $ billion I/GNP, % G, 1972, $ bilion Unemployment rate, % CPI, 1929 = 100 Commercial paper rate, % AAA rate, % Stock market index M1, 1929 = 100 Full employment surplus/Y*, %
1929 314.7 17.8 40.9 3.2 100 5.9 4.7 83.1 100 -0.8
1930 285.2 13.5 44.6 8.7 97.4 3.6 4.6 67.2 96.2 -1.4
1931 263.3 9 46.2 15.9 88.7 2.6 4.6 43.6 89.4 -3.1
Bank run and closing of failed banks followed. Customers lost their deposits. The second wave of banking failure occured during June 1931 and continued till December. The US government, in an attempt to balance their federal budget, increased the taxes in December 1931, which added to the intensification of the crisis. These events resulted in a 13.86% fall in GNP between 1931 and 1932, unemployment rose by a massive 48% between 1931 an 1932. The nominal money supply M1 dipped by 12.75% during this period. Though there was a rise in the supply of high-powered money, but the total money supply decreased due to a fall in the money multiplier triggered by the Fed's action of rising the currency-deposit and reserve-deposit ratios. The investment to GNP ratio fell by a huge 61%. The CPI rose by more than
But even before this things were underway which resulted in the crash and the subsequent deepening of the crisis into the Great Depression. In February 1928, the US Federeal Reserve increase the federal fund rate because it believed that the excessive speculations in the stock market had to be contained in order to sustain the economy. In the same year, US and France increased their gold reserves. Industrial production began to decrease world-wide.
Then in August 1929, US industrial production decreased by around 20% and finally the stock market crashed on October 24. On October 29, popularly known as the “Black Friday”, the US stock market collapsed. The Fed in an attempt to contain the stock market crash, lowered the interest rate. Some economists believe that the stock market crash did not have a significant impact on the economy since around only 15% people were involved in the stock market and less than 10% people's wealth was lost. But as a consequence of the stock market crash, what happened was a fall in the confidence in the economy in the minds of the investors and the people. In expectation of a lower future income, they reorganised their consumption plan, whose reduction led to deflationary pressures on the prices. On 17 June 1930, the US passed the Hawley-Smoot Tariff Act, which raised the import duties by more than 50% to stop imports