Causes of the Great Depression

1. Causes of the Great Depression What caused changes in the economy over time? How do depressions affect societies?

2. Terms Collapse – a sudden loss of force, value or effect Stock market – a system for buying and selling stocks in corporations Bull market – long period of rising stock prices Invest – to put money into a company in order to gain a future financial reward Speculation – buying stocks at great risk with the anticipation that the prices will rise Margin – buying a stock by paying only a fraction of the stock price and borrowing the rest Sum – a specified amount of money Margin call – demand by a broker that investors pay back loans made for stocks purchased on margin Bank run – persistent and heavy demands by a bank’s depositors, creditors or customers to withdraw money Installment – regular periodic payment made to pay off the cost of an item when buying it on credit

3. Charts/Graphs pg. 233 What can you infer about the health of the stock market prior to 1929? Due to the steady rise of stock prices prior to 1929, it can be inferred that the stock market appeared to be in good shape. What generalization can you make about the variation in highs and lows of the stock market from 1920 to 1932? Prices generally rose during the 1920’s but fell rapidly during the 1930’s

4. Charts/Graphs pg. 235 What basic economic principle underlay the cause of the Great Depression? Overproduction meant that the supply of goods outpaced demand for them. What effect did the decline in automobile sales have on related industries? Slower sales meant less demand for raw materials for manufacturing automobiles, which in turn led to job losses and lower wages.

5. Critical Thinking - 234 What investment practices most destabilized the stock market? Stock speculation and buying on margin made the stock market very unstable. Investors made risky investments with very little money to back them up, and the stock market became overvalued.

6. Progress Check - 233 What investment decisions destabilized the economy during the 1920’s? People did not adequately consider a stock’s value but instead made risky investments based on the bull market. Speculation and buying on margin made the stock market increasingly unstable.

7. Progress Check - 234 How did the failure of the stock market contribute to a larger economic decline? Because people had lost so much money in the stock market, the economy became increasingly unstable. Speculators could not pay back loans, and banks themselves lost so much money in the stock market that they could not cover depositors’ withdrawals.

8. Progress Check - 236 What were three existing economic conditions that contributed to the Depression? Uneven distribution of income, high tariffs, and low interest rates