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The Great Depression

The Great Depression. How was a decade of prosperity followed by a decade of hopelessness?. The 1920s: “The Good ole’ Days”. 1920s. 1930s. Over ¼ unemployed unemployment rate never dropped below 14 percent until 1941 1/4 th of work force worked shorter hours reducing their incomes

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The Great Depression

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  1. The Great Depression How was a decade of prosperity followed by a decade of hopelessness?

  2. The 1920s: “The Good ole’ Days” 1920s 1930s Over ¼ unemployed unemployment rate never dropped below 14 percent until 1941 1/4th of work force worked shorter hours reducing their incomes Families were losing their homes, and many starving. • jobs were plentiful • home ownership had doubled

  3. “a permanent plateau of peace and prosperity.” 1920s 1930s Many families were going hungry. 26% owned cars in 1920 Children were riding around in freight cars, looking for work • most home-owning families enjoyed amenities • 60% of all households had automobiles • More teenagers were attending high school; fewer were working full time.

  4. The Great Depression Causes of the Great Depression

  5. 1. Unequal distribution of wealth • 2% of people owned 60% of wealth • 50% of families lived below poverty level • Under $1500/yr • Unequal balance between production & distribution

  6. 2. Unequal distribution of corporate power • Government Policies benefited corporations and those who were wealthy • Abandoned anti-trust acts • 200 companies owned 50 % of nation’s wealth

  7. 3. Poor Banking Structure • Small, local banks owned by larger city ban • Not backed up or regulated by government • Lent out more than they took in http://www.youtube.com/watch?v=qu2uJWSZkck

  8. 4. High Tariffs and War Debts • European countries couldn’t pay WWI debt b/c hit by depression • Hawley-Smoot Tariff: placed a high tax on imports • countries retaliate and halt international trade

  9. 5. Overproduction in Industry & Agriculture • Purchase new machines with credit to increase production • Plan: pay off debt with “increased” income from “increased”sales

  10. 6. Buying on Credit • Americans bought most durable goods(refrigerators, washing machines, radios, cars…) on the installment plan: some money down at first, followed by a year of monthly payments + interest • By the end of 1920s American consumers bought the following on installment plans: * 65 percent of vacuum cleaners * 18 to 25 percent of jewelry * 80 to 90 percent of furniture * 60 to 75 percent of cars * 80 percent of phonographs * 75 percent of radios * 75 percent of washing machines

  11. 7. Playing the stock market • People hoped to make a quick buck by purchasing shares of businesses, also known as ______. • part ownership of a company so that when the company prospers so do you! • But…..if the business declines….you lose $$$$

  12. Problems with playing the stock market STOCK SPECULATION– risky move to buy stocks at low price then sell at a high price BUYING ON MARGIN: paying 10-50% of the stock and borrowing the rest from a broker

  13. Example of Buying on Margin The Good The Bad EXAMPLE 1 share is $110 and you pay $10 You owe stockbroker $100 with 10% interest per month 10 months the stock didn’t move and the broker wants his money…you sell the stock for $100 You owe stock broker $90 + $100 =$190……YOU LOSE • EXAMPLE • 1 share is $110 and you pay $10 • You owe stockbroker $100 with 10% interest per month • 2 months later the stock doubled ($200)….you sold it • You owe stock broker $120 but make $70 (80-10)

  14. Buying on margin The bad • High interest rates • Demand payment anytime • If stocks fall then don’t have money to pay back • Stocks go up • Borrowers sell at high price • Pay off… • Loan • Interest + make extra $$$ The good

  15. Short term trends that led to the Great Depression • WEDNESDAY, October 23rd– Dow Jones dropped 21pts in an hour before it closed • Dow Jones Industrial Average = an average of stock prices of major industries • BLACK THURSDAY October 24th–investors began to sell and stock prices fell.  JP Morgan & banks tried to stabilize market • BLACK TUESDAY/THE GREAT CRASH October 29th , 1929– FEAR led to selling stocks  16.4 million shares sold  investors lost over 30 billion dollars

  16. Short term trends that led to the Great DepressionThe Ripple Effect Caused by the Crash 4. Bank Failures – People are unable to pay loans to banks • More banks close • Fear leads to bank runs (people rushed to the banks to withdraw) 5. Savings wiped out – By 1933 nine million savings accounts vanished

  17. Short term trends that led to the Great DepressionThe Ripple Effect Caused by the Crash 6. Cuts in production – Businesses have no money to produce. Lack incentive due to lack of demand. 7. Businesses shut down - By 1933 100,000 business closed down 8. Rise in unemployment – As businesses cut back on production, workers are laid off. - went from 1.6million(3%) to 15million(25%)

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