1. Warning Signs

2. Focus Question In a short response of one to three sentences, answer the following question: How do people know if an economy is doing well or doing poorly?

3. Objectives After today’s lesson, you will: Describe the functions of the business cycle Identify three warning signs of problems in the U.S. economy in the 1920s Outline basic events at the start of the Great Depression

4. Terms to Remember Durable Goods: Goods designed to last a long time, typically very expensive Investment Goods: Machinery used to manufacture items Soft Goods: Goods immediately consumed with limited life span Business Cycle: Typical fluctuations in the business activity of a country

6. The Business Cycle Demand for durable goods falls Demand for investment goods falls Workers are laid off These unemployed workers spend less, demand for soft goods falls Demand for durable goods revives Demand for investment goods revives Workers are rehired Demand for soft goods revives

7. Multiplier Effect The Multiplier Effect looks at importance of durable goods in the economy For every dollar spent on durable goods, four to six dollars are added to the economy

8. The House Built on Sand 1920s economy very precarious Half living below the poverty rate Easy credit saw high personal debt loads Stock Market levels grossly inflated Volatile situation

9. Warning Signs Predictors of recession ahead could be seen in 1928 Housing starts falling Business inventories high Production and wholesale prices dropped Demand for crops dropped SIGNS OF DECREASING DEMAND

10. The Trigger The Stock Market crashed in October 1929 Lost 11% of all value on 10/24 (Black Thursday) Lost 13% on 10/28 (Black Monday) Lost 12% on 10/29 (Black Tuesday) Stock Market did not recover until 1947

12. Factors Leading to Depression Economic floor wiped out Inequality of income levels (Half below poverty level) Easy Credit (High personal debt) Foreign trade levels dropped (less demand) Mechanization (Factories required less employees) All four combined to send the economy into a tailspin

13. Economy sent reeling Unemployment rate soared (reached a high of 25%) Consumer sales plummeted Evictions mounted

14. Summary In a short reply of one to three sentences, explain what was the most important thing learned in class today: