Lesson 11: The New Deal


1.  A key to understanding people’s behavior is figuring out the incentives they face.
2.  Economic freedom, rule of law, and well-defined property rights promote growth and prosperity.
3.  Inflation (deflation) happens when the money supply grows more quickly (slowly) than output.
5.  Entrepreneurship, business, and the pursuit of profit create opportunities and economic growth.
6.  Government is the arena of competition among interest groups.

ECONOMIC CONCEPTS that support the historical analysis:

Opportunity Cost
Supply and Demand
Expected Benefits v. Expected Costs
Inflation and Deflation
Price floors


History Standards (from National Standards for History by the National Center for History in the Schools)

Era 8 – 2:  The student understands how the New Deal addressed the Great Depression, transformed American federalism, and initiated the welfare state.

Economics Standards (from Voluntary National Content Standards in Economics)

Standard 3:  Different methods can be used to allocate goods and services. People, acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services.

Standard 17:  Costs of government policies sometimes exceed benefits. This may occur because of incentives facing voters, government officials, and government employees, because of actions by special interest groups that can impose costs on the general public, or because social goals other than economic efficiency are being pursued.

Standard 18:  A nation’s overall levels of income, employment, and prices are determined by the interaction of spending and production decisions made by all households, firms, government agencies, and others in the economy.

Standard 20:  Federal government budgetary policy and the Federal Reserve System’s monetary policy influence the overall levels of employment, output, and prices.


  • Economic historians have NOT reached a consensus on whether taken as a whole, government policies of the New Deal served to make the Great Depression shorter and shallower or longer and deeper.
  • The central logic of most New Deal policies was that a stronger federal government was needed to deal with instabilities, deficiencies and excesses of the free market capitalism without significantly damaging its fundamental strengths.
  •  New Deal policies and programs appear to have permanently increased the size and scope of the federal government in a wide range of areas including agriculture, banking, labor markets, and old age security.
  •  FDR’s decision to remove the U.S. from the Gold Standard was one of the most important New Deal policies.
  •  New Deal policies that saw overproduction and competition as problems or which discouraged investment had detrimental impacts on the economy and economic recovery (EX:  Agriculture Adjustment Acts of 1933 and 1938, National Industrial Recovery Act which allowed producers to cartelize and boost prices)
  •  New Deal policies and spending patterns were driven by four R’s (not just the traditional three R’s) – relief, recovery, reform, and re-election.