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Causes of Great Depression

Causes of Great Depression. Chapter 22. Economy in the 1920s: Booming Economy. WWI brought US out of recession Americans generally optimistic 1925—stock market value: $27 Billion Stock market value in Oct. 1929 $87 Billion Average wages increased by 40% since WWI Unemployment below 4%.

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Causes of Great Depression

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  1. Causes of Great Depression Chapter 22

  2. Economy in the 1920s: Booming Economy • WWI brought US out of recession • Americans generally optimistic • 1925—stock market value: $27 Billion • Stock market value in Oct. 1929 $87 Billion • Average wages increased by 40% since WWI • Unemployment below 4%

  3. Republicans in Charge • Progressive reform ends • Income taxes on the wealthy go down • Efforts to help businesses • Anti-trust efforts end • Protective tariffs rise

  4. Republicans in Charge • Americans obsessed with the business world in 1920s • Three Republican presidents in a row reflects the public’s emphasis on business • Welfare Capitalism—approach to labor relations whereby employers improved benefits & pay to workers w/out demands from unions

  5. Economic Danger Signs • Uneven prosperity • Rich got richer; Huge corporations dominated business world • Buying on credit • Increase in personal debt; people bought all the new stuff even if they couldn’t afford them

  6. Economic Danger Signs • Risky activity in stock market • “Get rich quick” attitude • Encouraged speculation—practice of making high risk investments in hopes of getting a high return • Stockbrokers encouraged buying on margin—allowed investors to buy stock for a fraction of its price & borrow the rest • Supply & Demand • Overproduction and under-consumption slowed economy in late 1920s

  7. Stock Market Crash • Dow Jones Industrial Average—average of stock prices of major industries—climbed to 191 by early 1928 • March 4, 1929—rose by another 122 points • Sept. 3, 1929—reached all time high of 381

  8. Stock Market Crash • After peak in Sept. stock prices fell slowly • Oct. 23—Dow Jones average dropped 21 points in 1 hour • Oct. 24—dropped another 24 points • Oct. 29—Black Tuesday: a record 16.4 million shares sold (average was 4-8 million) • Nov. 13—market had fallen to 198.7 (from 381) • Losses totaled $30 Billion!!!

  9. Causes of the Depression • Stock market crash was NOT the cause!!! Only the final straw • Over-speculation: Investors bought stocks w/ borrowed $, then used stocks as collateral to buy more stocks (stock market boom based on borrowed $ and optimism instead of real value)

  10. Causes of the Depression • Gov’t policies: Federal Reserve cut interest rates to spur economic growth; in 1929 limited the money supply to discourage lending—after crash too little $ in circulation to help economy recover • Unstable economy: Economy lacked a firm base; wealth distributed unevenly--$ in hands of a few wealthy families who saved rather than spent their $. Industry produced more goods than were consumed (workers & farmers didn’t share in economic boom) • Unevenness of the 1920s prosperity made rapid economic recovery impossible

  11. Impact of the Depression • Impact on workers and farmers • http://www.youtube.com/watch?v=gplaqa2yRgg&feature=fvw • http://www.youtube.com/watch?v=1_nG9LX0Ioo&feature=related • Banks close • http://www.youtube.com/watch?v=qu2uJWSZkck&feature=related • Impact on World

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