1. A worldwide depression

2.  In the late 1920s, American economic prosperity largely sustained the world economy.  If the U.S. economy weakened, the whole world’s economic system might collapse.

3.  Several weaknesses in the U.S. economy caused serious problems. 1. Uneven distribution of wealth 2. Overproduction by business and agriculture 3. Decreased American spending

4.  Many business owners were very wealthy but, most families were too poor to buy the goods being produced.  Unable to sell all their goods, store owners eventually cut back their orders from factories.  Factories laid off workers, families bought fewer goods. In turn, factories laid off even more workers.

5.  People were buying stocks on margin. They paid a small percentage of a stock’s price and borrowed the rest  The system worked if stock prices were rising. If they fell, investors had no money to pay off the loan.  Prices plunged to a new low. And a record 16 million stocks were sold. Causing the market to collapse

6.  Stocks people bought at high prices were now worthless.  Within months of the crash, unemployment rates began to rise as industrial production, prices, and wages declined.  A long business slump, which would come to be called the Great Depression followed.

7.  The collapse of the US economy sent shock waves around the world.  Worried US bankers demanded repayment of their loans and investors withdrew their money from Europe  This severely hurt European countries who were dependent on US loans

8.  The Depression confronted democracies with a serious challenge to their economic and political systems. Each country met the crisis in its own way  The US elected Franklin D. Roosevelt who enacted a program called the New Deal

9.  Roosevelt believed that government spending would create jobs and start a recovery.  Large public works projects provided jobs for the unemployed.  New government agencies gave financial help to businesses and farms.  Large amounts of public money were spent on welfare and relief programs.  Regulations were imposed to reform the stock market and the banking system.

10.  1. What three problems caused serious trouble in the US economy?  2. Explain how an uneven distribution of wealth lead to the problems of overproduction and decreased spending.  3. How did the collapse of the US economy affect European countries?  4. Define Great Depression.  5. What are some characteristics of the New Deal?