BELLWORK What is a Depression? What are some signs of a booming economy? (How do you know when an economy is doing well?) How would you cut back on your.
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BELLWORK What is a Depression? What are some signs of a booming economy? (How do you know when an economy is doing well?) How would you cut back on your expenses if your cash funds were severely limited? THINKER: Describe what it is like to ride a roller coaster: what feelings do you get? How is it structured? How can it be scary?
On this blank sheet of paper: Draw a roller coaster Make sure you leave room for notes and descriptions – SUMMARIZE!
1920’s Booming Economy Increasing Employment: more jobs after WWI, factories, and urban growth Increasing Income Prosperity: since people were making more, they were investing in stock at a high value Consumer Economy: economy dependent on spending; use of credit
1920’s Unsound Economy Towards the end of the 1920’s the economy started getting worse….. Uneven Prosperity: tax cuts for the wealthy; rich got richer Personal Debt: luxury items seem affordable with credit, but no one could pay it off Playing the Stock Market: Speculation – high risk investments for a big return Overproduction: Originally high demand, but now, too much product. Companies lost A LOT of money!
Speculation Stock market speculation- Making very high risk investments with the hope of huge returns. Elevated prices to false values “Have to bet big to win big”
How Stocks Work Companies are made up of stocks Stocks (shares): small portions of the company that can be bought and sold for a given amount of money. When a company does well (makes a profit), the stock increases in value. When a company does poorly (loses money), the stocks decrease in value. The Stock Market: the place where stocks are bought and sold.
The Case of Circuit City Opened in 1949 as a retailer of brand-name electronics, computers, and entertainment systems. Joined the stock market in 1984 – fairly successful 2003: eliminated commission sales, 4000 employees laid off As of 2005, Circuit City held $1 billion in investments 2007: Management Turnover, 3500 more jobs lost 2008: CEO resigned, closed 155 stores, laid off 17% of workers 11/10/08: filed for Bankruptcy, $2.32 billion in debt 1/16/09: announced they were going out of business – closing all U.S. stores
All these factors combined until October 29, 1929 when...... THE STOCK MARKET CRASHED!!!!
BLACK TUESDAY Inflated stock prices began to fall at a rapid rate. 16.4 million shares were immediately sold Sold at much lower prices than for what they were bought= huge financial losses for sellers. Sends economy into a downfall.
“Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even.” –Richard Salsman (Stock Broker)
In 1929, America’s population was 120 million, but only 4 million held stocks. If this was such a small number, how and why did EVERYONE become affected by the Great Crash?
Ripple Effect of the Crash The Great Crash spread to the rest of Americans through the combination of 4 factors: 1.Risky loans hurt banks: businesses could not repay loans 2.Consumer borrowing: consumers did not have the money to repay any loans 3.Rise in unemployment: even greater numbers than before 4.Bank runs: fearful that banks would run out of money, people rushed to make withdrawals from their accounts. This eventually wiped out people’s savings and created bank failures.
These results of the Great Crash triggered the most severe economic downturn in history. The Great Depression: lasted from 1929 until the U.S. entered WWII in 1941.
Impact on Farmers and Workers As production fell and unemployment increased, factories began to close. Ford shut down his Detroit factories – 75,000 people were laid off. Farm prices began to fall – In 1929 wheat was $1.18, in 1932 it was $0.49. 12 million unemployed (1/4 of labor force) GNP: 1929 - $103 billion; 1933 - $56 billion
Impact on the World Countries in Latin America and Europe depended on the U.S. markets for goods, investments and loans. Global economic system crumbled. Americans couldn’t invest in German goods German banks failed suspended reparation payments Allies stopped paying debts Industrial production fell = FAILURE OF GLOBAL ECONOMY!
CLOSURE What four factors involved all Americans in the Great Depression? Out of those four, which do YOU feel had the biggest effect on America’s economy? Explain! How did America’s depression send the world into a global economic crisis?