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The Stock Market Crash Angela Brown Chapter 22 Section 2.

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Presentation on theme: "The Stock Market Crash Angela Brown Chapter 22 Section 2."— Presentation transcript:

1 The Stock Market Crash Angela Brown Chapter 22 Section 2

2 Stock Market  1928 Dow Jones Industrial Average - average of stock prices of major industries  March 1929 risen another 122 points  September 3 all- time high of 381


4 The Market Crashes  Prices for many stocks soared far above their real value in terms of the company’s earnings and assets. images/adcopy/1929%20Stock%20 Crash.gif

5 Black Thursday  Stocks fell slowly.  Some stockbrokers called in loans – others continued to lend  Dropped 21 points in an hour Oct. 23  Oct 24 investors began to sell – stock prices fell

6 BBBBusiness, political leaders told country not to worry. $$$$3 billion paper loss on the stock exchange in a single day. market_crash_1929.jpg

7 Black Tuesday  To stop panic, a group of bankers pooled money to buy stock.  Stabilized prices for a few days  Investors raced to get their money out of the stock market. government-control-stock-market-crash-1.jpg

8  Black Tuesday, Oct. 29, 16.4 million shares were sold, compared with average 4 million to 8 million shares per day = GREAT CRASH  Continued to fall November 13 198.7 from 381 - $30 billion total losses  Business Cycle – periods of economic growth, then contraction

9 From Riches to Ruin  Took time for people to recognize the extent of the disaster caused by the crash.  People whose entire wealth did not depend on the stock market, life went on much as before.  Brokers and banks called in loans – people did not have cash to pay them

10 The Crash Affects Millions  1929 4 million of 120 million U.S. population had invested in the stock market  soon affected millions had never owned stock  Great Depression – a severe economic decline that lasted from 1929 until the U.S. entered WWII in 1941 (12 years)

11  Americans lost jobs, farms, homes  Ripple effect produced world turmoil for years

12 Impact on Workers and Farmers  1931 Ford shut down Detroit automobile Factories – 75,000 out of work  European workers had government unemployment insurance  1932 ¼ labor force out of work (12 million)

13  The Gross National Product (GNP) – total value of goods and services a country produces annually ($103 billion in 1929)  1933 GNP 56 billion

14 Banks Close  Banks exist on interest earned from lending out deposits.  People rushed to withdraw money.  5500 banks failed.  1933 money from 9 million savings accounts vanished. 1017&rendTypeId=4

15 Impact on the World  International banking manufacturing, trade made nations interdependent.  Global economic system crumbled.  U.S. had insisted France, Britain repay war debt.  Import taxes high = hard for European nations to sell goods in U.S.

16 Resources/image11.gif

17  Allies relied on Germany’s reparations for payments.  Depression – investments fell off – Germany suspended reparations – Allies stopped payments  Europeans couldn’t afford to buy U.S. goods = downward cycle in global economy

18 Causes of Depression  Overspeculation  Speculators bought stocks with borrowed money, pledged those stocks as collateral to buy more stocks.  Collateral is an item of value that a borrower agrees to forfeit to the lender if the borrower cannot repay a loan.  Stock market boom was based on borrowed money and optimism instead of real value.

19 Government Policies  Federal Reserve System, which regulates the amount of money in circulation, cut interest rates to spur economic growth.  1929 limited money supply to discourage lending.  Too little money in circulation to help the economy recover.

20 An Unstable Economy  National wealth was unevenly distributed (saved or invested rather than buy goods).  Industry produced more goods than could sale.  Farmers and workers not part of boom.  Unevenness made rapid recovery impossible.

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