Find a partner and pick up one of the handouts from the front of the room. You only need one handout per pair. Today is going to be AWESOME!!! I have a really good feeling…  YeeHaw Game!

Causes of the Great Depression Today’s LEQ: What caused the most severe economic crisis in American history?

Purpose of stock market is to provide businesses with money to expand Stock market was booming in the 1920s; result was a bull market Stock Market Crash

Bull Market

Many thought there was no limit to how high the bull market could go People put their savings in stock and even borrowed money to invest! This is called buying on the margin. For example, a buyer may pay 10% of stock’s price and borrow the other 90% from a stock broker. Stock Market Crash

Easy borrowing encouraged speculation – making risky investments in hopes of earning large profits. Hoped to make big money really quickly Artificially drove up stock prices Stock Market Crash

Stock market peaked in September 1929 then started to fall – created a bear market HUGE drop on Black Tuesday in October 1929! Fearful of losing everything, investors rushed to sell their stocks, pushing prices even lower Stock Market Crash

Bear Market

As prices fell, stockbrokers demanded loans be repaid; investors could not make enough selling their stocks to repay their loans. Many sold their homes, cars, etc. to pay their debts Even businesses affected – those companies that invested their profits went bankrupt Stock Market Crash was a key cause but not the only cause… http://www.youtube.com/watch?v=zSfzFWU5L bY Stock Market Crash

Banking Crisis Stock Market Crash triggered banking crisis In the 1920s, banks loaned money to stockbrokers, who in turn loaned that money to individual investors… Bad loans piled up and depositors lost confidence in their local banks Resulted in bank runs Once bank ran out of cash, it closed its doors. Millions saw their savings vanish. Banking Crisis

Too Much for Sale, Too Little to Spend By 1920, most American factories used assembly line method of mass production. Output per worker increased 32% by 1929! Resulted in overproduction – more products created than people could afford to buy How would you graph this? Widening gap between rich and poor; For a time, many Americans used credit to buy cars, radios, etc. Too Much for Sale, Too Little to Spend

Too Much for Sale, Too Little to Spend By 1929, buying spree was over Many were deep in debt Even the rich bought less because they already owned everything they needed Economy was showing signs of underconsumption – people not buying as much as economy was producing How would you graph this? Too Much for Sale, Too Little to Spend

Farm Failures, Bankruptcies, and Layoffs Farmers first to feel the pain Troubles started after WWI; American farmers supplied food for soldiers and war-torn Europe; after WWI, consumption decreased and prices dropped. How would you graph this? Problems of underconsumption spread to industry Production declined by 38% by end of 1930; many businesses went bankrupt Many workers found themselves unemployed (from 3% in 1929 to 25% in 1933) Vicious downward spiral had started - truly DEPRESSING situation… Farm Failures, Bankruptcies, and Layoffs

Could the Great Depression have been avoided??? The BIG Question…

RAFT Assignment Role: Economic Advisor Audience: President Hoover, Congress, and the Chairman of the Federal Reserve Format: Speech Topic: Explain to President Hoover, Congress, and the Fed why their actions thus far have been counteractive in preventing a Great Depression. Convince them to follow your recommendations and be sure to discuss both fiscal policy and monetary policy. RAFT Assignment