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Causes of the Great Depression The main cause of the Great Depression was a lack of understanding of economic systems. The Great Depression began in 1929, during Republican President Hoover's watch. Many try to blame the worsening of the Depression on Hoover, for his deviation from Republican economic ideology. However, almost all of Hoover's government action occurred during his last year in office, long after the worst of the Depression had hit. In fact, he was …

…because of people withdrawing their funds from the market. A working economy relies on a circular flow of money; my spending becomes part of your earnings, and your spending becomes part of my earnings. With the crash of the stock market and the failure of the banks, people became frightened. They pulled out their funds in order to protect their livelihoods. This resulted in a breakdown of the circular flow of money. Hence, a depression.