1. The Great Depression

2. Essential Questions:
1) What led to the stock market crash of October 1929?
2) What were the effects of the crash on investors, banks, and businesses?
3) What were the roots of the Great Depression?

3. Definition of Depression
A depression is a long-term downturn of economic activity
They are characterized by:
Large increases in unemployment
Banking crisis
Shrinking output
Decrease in demand
Bankruptcies and foreclosures
Significantly reduced amounts of trade

4. What is a stock?
One way companies grow is by selling stock, or portions of their company.
People like to purchase stocks because they can make a profit.

5. 1920s Stock Market Boom Leads to Overconfidence
From 1922 to 1929, the Stock Market rose dramatically (Bull Market)
“foolproof” way to get rich
Investors bought stocks on margin (borrowed $)
Pay $1 upfront for $10 worth of stock, counting on Stock Market rise to pay for loan

6. Day of the Crash: Black Tuesday
Black Thursday: October 24, 1929  rumors began that the market was on the verge of collapse, a few nervous investors began selling stocks, others followed
stock prices fell as selling continued and the market flooded with stocks  PANIC!
Black Tuesday: October 29  stock values fell $10-15 billion

7. Talk to your neighbor: What led to the stock market crash of October 1929?

8. The Effects of the Crash on Investors
Investors who bought stocks on margin lost original investment AND could not repay loans
Many lost their fortunes overnight

9. Effect of the Crash on Banks
Investors borrowed from banks to buy stocks
Crash  banks could not collect from investors
Depositors rush to withdraw their savings (run on banks)

10. Effect of the Crash on Businesses
Banks were unwilling/unable to lend money to businesses
Consumers stopped purchasing goods
Companies shrink and lay off workers

11. Talk to your neighbor: What were the effects of the crash on investors, banks, and businesses?

12. Seeds of Decline 1920s Cruel Illusion
Production boomed, but prosperity bypassed many groups
More than 40% lived well under poverty line in 1929
Indirect Causes:
Decline in farming
Unequal distribution of wealth
Overuse of credit
Protective trade tariffs (taxes)

13. Decline in Farming during 1920s
After WWI, European farming revived and drove down prices
Farmers defaulted on loans, and farms were seized by the banks

14. Unequal Distribution of Wealth
Richest 5% received 34% of income
Disposable income decreased for poorest 93%

15. Overuse of Credit
1920s consumers bought on credit  credit bills mounted
Consumers stopped spending in order to pay off credit
This led to decreased demand
Businesses lay off workers which led to unemployment
Less consumer spending because less income Vicious cycle!

16. Protective Tariffs (taxes)
Taxes on foreign made products
Congress passed Hawley-Smoot Tariff
Foreign countries responded with their own protective tariffs
decrease in US sales abroad
International trade decreased 30% by 1933!

17. Talk to your neighbor: What were the roots of the Great Depression?