American History Chapter 15: Crash and Depression

1. American History Chapter 15: Crash and Depression I. The Stock Market Crash

2. Objectives • Learn about events that led to the stock market’s Great Crash in 1929. • See how the Great Crash produced a ripple effect throughout the nation’s economy. • Become familiar with the main causes of the Great Depression.

3. Bell Ringer • What would happen if you went to your bank and asked to withdraw money from your savings account and were told that there is no money. • What might cause that situation? • What options would you have? • What do you know about the Great Depression. (page 508)

4. A) The Market Crashes • Dow Jones Industrial Average: an average of stock prices of major industries • September 3rd all time high – 381 /8018 • Stock prices were higher than what they were worth • Black Thursday – Oct 24 – dropped 21 points in last hour GE 400 – 283 • Black Tuesday: Oct 29th – record number of stocks sold the great crash • Great Crash: collapse of the stock market 381-198 – 30 billion in losses • Business cycle: the periodic growth and contraction of a nation’s economy

5. B) The Ripple Effect of the Crash • At first only investors hurt – did trickle down • Risky loans hurt banks – with the crash the business lost could not repay • Consumer borrowing – people borrowed to buy things – loans recalled • Bank runs – people rushed to get money out of banks – called in loans – business that were hurt couldn’t pay • Bank failures – banks that couldn’t pay went broke • Savings wiped out – when banks went so did savings • Cuts in production – can’t borrow to expand, nobody had money to buy anyway • Rise in unemployment • Further cuts in production – unemployment grew and incomes shrank – consumers spent less and business produced less

6. Economic Contraction – decline marked by falling output of goods and services – long one is called a depression • Great Depression: most severe economic downtown in the nation’s history • Factories closed – small business next – farm prices fell – 1932 – 25% of work force unemployed – GNP dropped in half • World nations interdependent – US quit investing in Germany – Germany suspended reparation payments – Alias quit repaying war loans to US

7. C) Underlying Causes of the Depression • An unstable economy – most money in the hands of few rich – not consumers/ industry produced more than could be bought/ Farmers and workers not getting money • Over speculation – people bought stocks and used those stocks as collateral to buy more – money is all borrowed, not there • Government polices – the FED did not lower interest rates after crash to increase money supply

8. Review • What events led to the stock market’s Great Crash in 1929. • Why did the Great Crash produce a ripple effect throughout the nation’s economy? • What were the main causes of the Great Depression?