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Warning Signs

Warning Signs. Focus Question. In a short response of one to three sentences, answer the following question: How do people know if an economy is doing well or doing poorly?. Objectives. After today’s lesson, you will: Describe the functions of the business cycle

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Warning Signs

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  1. Warning Signs

  2. Focus Question In a short response of one to three sentences, answer the following question: • How do people know if an economy is doing well or doing poorly?

  3. Objectives After today’s lesson, you will: • Describe the functions of the business cycle • Identify three warning signs of problems in the U.S. economy in the 1920s • Outline basic events at the start of the Great Depression

  4. Terms to Remember • Durable Goods: • Goods designed to last a long time, typically very expensive • Investment Goods: • Machinery used to manufacture items • Soft Goods: • Goods immediately consumed with limited life span • Business Cycle: • Typical fluctuations in the business activity of a country

  5. The Business Cycle • Demand for durable goods falls • Demand for investment goods falls • Workers are laid off • These unemployed workers spend less, demand for soft goods falls • Demand for durable goods revives • Demand for investment goods revives • Workers are rehired • Demand for soft goods revives

  6. The House Built on Sand • 1920s economy very precarious • Half living below the poverty rate • Easy credit saw high personal debt loads • Stock Market levels grossly inflated • Volatile situation

  7. Warning Signs • Predictors of recession ahead could be seen in 1928 • Housing starts falling • Business inventories high • Production and wholesale prices dropped • Demand for crops dropped SIGNS OF DECREASING DEMAND

  8. Factors Leading to Depression • Economic floor wiped out • Inequality of income levels (Half below poverty level) • Easy Credit (High personal debt) • Foreign trade levels dropped (less demand) • Mechanization (Factories required less employees) • All four combined to send the economy into a tailspin

  9. The Trigger • The Stock Market crashed in October 1929 • Lost 11% of all value on 10/24 (Black Thursday) • Lost 13% on 10/28 (Black Monday) • Lost 12% on 10/29 (Black Tuesday) • Stock Market did not recover until 1947

  10. Economy sent reeling • Unemployment rate soared (reached a high of 25%) • Consumer sales plummeted • Evictions mounted

  11. Summary • In a short reply of one to three sentences, explain what was the most important thing learned in class today:

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