Chapter 15 Section 1 The Stock Market Crash and the end to “wonderful prosperity”

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Presentation transcript:

Chapter 15 Section 1 The Stock Market Crash and the end to “wonderful prosperity”

What Happened? the Dow Jones Industrial Average climbed to an all time high of 381 Prices for many stocks were far above their real value in terms of the company’s earnings and assets Stock prices began to fall slowly. Wed. Oct. 23 rd, prices dropped 21 pts in one hour Black Thursday: worried investors began to sell and stock prices fell GE- stock bought at $400 sold at $283/share Group of investors pooled money to buy stock. Stabilized prices for a few days Panicked investors raced to sell stocks on Monday Black Tuesday: record 16.4 million shares sold

The Great Crash Collapse of the stock market is called the Great Crash Part of the business cycle: a span in which the economy grows then contracts Cycle-.htm Cycle-.htm

The Ripple Effect of the Crash Investors lose millions in stock market crash Falling stock prices causes businesses to lose profits Businesses cut investment and production. Some fail. Workers are laid off. Consumer spending drops Businesses and workers cannot repay bank loans. Banks run out of money and fail. Bank runs occur. Savings accounts are wiped out. Overall U.S. production plummets. U.S. investors stop investing in Germany. German war payments to Allies stop. Allies cannot pay debts to U.S.

Underlying Causes of Depression Unstable Economy Uneven distribution of wealth Overproduction Increasing personal debt Struggling farmers and workers Over-speculation Speculators bough stocks with borrowed money and then pledged those stocks as collateral to buy more stocks Government Policies Federal Reserve system cut interest rates to spur economic growth in early ‘20s, then worried about overspeculation, limited the money supply to discourage lending resulting in too little money in circulation to help the economy recover after the Great Crash

The Causes of the Great Depression Video Clip TER=11&MODE=2 TER=11&MODE=2