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Chapter 22

Chapter 22. The Great Depression Begins. 22-1 Notes. Causes of the Great Depression. I. The Election of 1928. A. Candidates. Herbert Hoover (Republican) Al Smith (Democrat) a. Four-term Gov. of NY b. Roman Catholic. B. Campaign Issues. Prohibition a. Hoover (dry)

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Chapter 22

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  1. Chapter 22 The Great Depression Begins

  2. 22-1 Notes Causes of the Great Depression

  3. I. The Election of 1928

  4. A. Candidates • Herbert Hoover (Republican) • Al Smith (Democrat) a. Four-term Gov. of NY b. Roman Catholic

  5. B. Campaign Issues • Prohibition a. Hoover (dry) b. Smith (wet) • Religion: Smith’s Catholicism an issue • Economy: Republicans take credit • Hoover wins in a landslide a. 6 million vote margin b. 444 to 87 in Electoral College

  6. II. The Long Bull Market

  7. A. The Stock Market • Bear –vs- Bull Market • 1920s was one long bull market • Stock prices kept going up • 10% of Americans owned stock • Apple stock $523 a share (2013) • Google stock $734 a share (2013) • Starbucks stock $55 a share (2013) • Disney stock $51 a share (2013) • Coca-Cola %37 a share (2013)

  8. B. Problems • Buying on Margin & margin calls • Stocks were overvalued • Speculation in stocks drives prices higher

  9. III. The Great Crash

  10. A. The Stock Market Peaks • Dow Jones Industrial Average • DJIA peaks at 381 points, Sept. 1929 • DJIA today: 13384 (2013) • Stock prices slowly begin to fall through Oct. 1929 http://money.cnn.com/data/markets/dow/?page=1

  11. B. The Crash • Investors begin to worry & sell stocks • Prices fall…more sell… • Black Thursday, Oct. 24, 1929: sharp drop in prices • Banks (JP Morgan, etc.) step in and buy to stop falling prices (Fri. & Mon.)

  12. B. (continued) • Black Tuesday, Oct. 29, 1929 a. Stocks nosedive b. $10-15 billion in stock value disappears • By mid-Nov. 1929 $30 billion disappears • The Crash didn’t cause the Great Depression, but it made it worse

  13. C. Banks Fail • Banks had loaned money to speculators • Banks had invested deposits in stock market • After the stock market crash: a. Speculators defaulted on loans b. Banks lost money c. Banks stop loaning money d. Lack of $$ causes recession

  14. C. (continued) • Runs on banks a. People rush to withdraw savings b. Banks run out of money c. No one deposits money in the banks d. Banks close e. 3,000 banks close (1929-31)

  15. IV. Causes of the Great Depression

  16. A. Overproduction • farms/factories produce more than people are buying • Drives prices lower • Farms/factories cannot make a profit • Cut back on wages • Lay-off workers…unemployment

  17. B. Uneven Distribution of Income • Top 5% control 30% of wealth in US • 2/3 of families make less than $2,500 • 50% of population in poverty • If you live in poverty, you aren’t contributing to the economy • Rich were getting richer…poor getting poorer

  18. C. Too much consumer debt • People borrowed to buy everything • Many only make enough $$ to pay debts • People stop buying in order to pay for things they bought on installment plans • Factories lay-off workers • Causes downward spiral

  19. D. High Tariffs • Hawley-Smoot Tariff (1930) a. Raises tariffs on foreign goods b. Protective tariff c. Highest tariff in US history • Foreign countries raise tariffs on US goods • US cannot sell goods in foreign countries • Prices fall lay-offs economy worsens

  20. E. Mistakes by the Federal Reserve • Should have raised interest rates to slow the economy down • Low rates encouraged borrowing • Companies expanded & overproduced • Prices fall lay-offs economy worsens • Fed. Reserve makes it worse by raising interest rates after the Depression started…less cash in the economy

  21. F. Economy Spirals Downward • Cyclical Effect (p. 658) • People don’t have money sales fall prices fall production falls lay-offs/wages cut people have less $$ sales fall further …

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