 The Law of Supply and Demand If the supply of goods increases, and consumer demand stays the same, the price will drop Theoretically, you can never produce too many goods. Paraphrase: Example:

 Say’s Law Surplus will always disappear because prices will come down until everything is purchased Economy will self- regulate Paraphrase: Example:  The Business Cycle Trough- low point where many are unemployed- not buying Prices reach a low point, where the poorest start buying, economy rebounds- recovery- expansion until people reach a peak where they stop buying

 The Stock Market The Stock Market Public companies sell ownership shares to investors- way to raise money for a business to expand  Business succeeds, investors receive a part of the profit- business fails, investors lose their investment Few people hold onto stocks- they buy and sell with the hope of making a profit Speculation- purchasing shares in the hope/prediction that they will rise in price  Can be dangerous- high risk

 Mentality of the 1920s- easy money and a steadily rising economy Land investments in Florida- scams  Northern investors spent millions- 10% down  Exaggerated claims, tiny lots, etc.  2 hurricanes ripped through Florida in 1926 “Everybody Ought to be Rich”  Feeling of security in the stock market- belief that it would continue to rise  Buying on a margin- purchasing with only a small percentage down- installment plans

 October 29, Black Tuesday- At the New York Stock Exchange, stock prices plummeted as stock holders madly sold stock Average trading volume ~3 million shares/day  Black Tuesday- 16, 410,030 shares traded Stock holders sold stock for whatever they could get, trying to cut their losses  Signified the end of the prosperity of the Roaring 20s and the beginning of the Great Depression

 In reality, many American families lived below the poverty line in the 20s- despite the rise in production- wages were still low Many minority groups did not share in the prosperity of the 20s  Decrease in housing production 1924 law limiting immigration- lower demand for housing  Surplus- businesses built up large surplus inventories

 Farming situation- American farmers had been in trouble since the end of WW1 When the European markets rebounded- influx of goods drove prices down Famers were left with low value goods and many debts Farmers stopped purchasing farming equipment, and many lost their farms- putting pressure on banks  5,000/30,000 banks closed between 1920 and 1929

 Banking pressure= banks are reluctant to give out loans = many small businesses failed  After the crash, consumers needed to repay personal debts (from buying on margin and living beyond their means) To repay, consumers stopped all unnecessary spending Caused businesses to lose money- lower production and layoffs  Unemployed workers spent even less- and the cycle continued to spiral down

 The Federal Reserve “Liquidity Crisis”- very little cash in circulation The Fed was attempting to limit speculation before the crash by limiting the money supply, however they did not change tactics after the crash  Bank runs- in the first 10 months of 1930, 744 banks went bankrupt and their customers lost everything Great loss of confidence in the banking system- thousands of customers rushed to the banks to withdraw their cash immediately Banks often did not have the money on hand- long term investments  Tariffs- extremely high US tariffs stifled trade- prevented European nations from paying off debts- caused Europe to add their own tariffs, cutting off US exports

 Complete Cause and Effect Graphic organizer describing 3 factors in the beginning of the Great Depression