Essential Questions:Essential Questions:1) What led to the stock market crash 1) What led to the stock market crash

of October 1929? of October 1929?

2) What were the effects of the crash 2) What were the effects of the crash on investors, banks, and businesses? on investors, banks, and businesses?

3) What were the roots of the Great 3) What were the roots of the Great Depression?Depression?

Definition of DepressionDefinition of Depression• A depression is a A depression is a

long-term downturn long-term downturn of economic activityof economic activity

• They are They are characterized by:characterized by:

• Large increases in Large increases in unemploymentunemployment

• Banking crisisBanking crisis• Shrinking outputShrinking output• Decrease in demandDecrease in demand• Bankruptcies and Bankruptcies and

foreclosuresforeclosures• Significantly reduced Significantly reduced

amounts of tradeamounts of trade

What is a stock? What is a stock?

One way companies One way companies grow is by selling grow is by selling stock, or portions of stock, or portions of their company.their company.

People like to People like to purchase stocks purchase stocks because they can because they can make a profit.make a profit.

1920s Stock Market Boom 1920s Stock Market Boom Leads to OverconfidenceLeads to Overconfidence

From 1922 to 1929, the From 1922 to 1929, the Stock Market rose Stock Market rose dramatically (dramatically (Bull Bull MarketMarket)) ““foolprooffoolproof”” way to get way to get

richrich Investors bought stocks Investors bought stocks

on margin (borrowed on margin (borrowed $)$) Pay $1 upfront for Pay $1 upfront for

$10 worth of stock, $10 worth of stock, counting on Stock counting on Stock Market rise to pay for Market rise to pay for loanloan

Day of the Crash: Black Day of the Crash: Black TuesdayTuesday

Black Thursday: October Black Thursday: October 24, 1929 24, 1929 rumors rumors began that the market began that the market was on the verge of was on the verge of collapse, a few nervous collapse, a few nervous investors began selling investors began selling stocks, others followedstocks, others followed

stock prices fell as stock prices fell as selling continued and selling continued and the market flooded with the market flooded with stocks stocks PANIC! PANIC!

Black Tuesday: October Black Tuesday: October 29 29 stock values fell stock values fell $10-15 billion$10-15 billion

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

The Effects of the Crash The Effects of the Crash on Investorson Investors

Investors who bought Investors who bought stocks on margin stocks on margin lost lost original investment AND original investment AND could not repay loanscould not repay loansMany lost their fortunes Many lost their fortunes overnightovernight

Effect of the Crash on BanksEffect of the Crash on Banks

Investors Investors borrowed from borrowed from banks to buy banks to buy stocksstocks Crash Crash banks banks

could not could not collect from collect from investorsinvestors

Depositors rush Depositors rush to withdraw their to withdraw their savings (run on savings (run on banks)banks)

Effect of the Crash on Effect of the Crash on BusinessesBusinesses

Banks were Banks were unwilling/unable to unwilling/unable to lend money to lend money to businessesbusinesses

Consumers stopped Consumers stopped purchasing goodspurchasing goods

Companies shrink Companies shrink and lay off workersand lay off workers

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

Seeds of DeclineSeeds of Decline 1920s Cruel Illusion1920s Cruel Illusion

Production boomed, Production boomed, but prosperity but prosperity bypassed many groupsbypassed many groups

More than 40% lived More than 40% lived well under poverty line well under poverty line in 1929in 1929

Indirect Causes:Indirect Causes:1.1. Decline in farmingDecline in farming2.2. Unequal distribution of Unequal distribution of

wealthwealth3.3. Overuse of creditOveruse of credit4.4. Protective trade tariffs Protective trade tariffs

(taxes)(taxes)

Decline in Farming during Decline in Farming during 1920s1920s

After WWI, After WWI, European European farming revived farming revived and drove down and drove down pricesprices

Farmers Farmers defaulted on defaulted on loans, and farms loans, and farms were seized by were seized by the banksthe banks

Unequal Distribution of Unequal Distribution of WealthWealth

Richest 5% Richest 5% received 34% received 34% of incomeof income

Disposable Disposable income income decreased for decreased for poorest 93%poorest 93%

Overuse of CreditOveruse of Credit 1920s consumers 1920s consumers

bought on credit bought on credit credit bills mounted credit bills mounted

Consumers stopped Consumers stopped spending in order to spending in order to pay off credit pay off credit

This led to decreased This led to decreased demand demand

Businesses lay off Businesses lay off workers which led to workers which led to unemployment unemployment

Less consumer Less consumer spending because less spending because less incomeincome Vicious cycle! Vicious cycle!

Protective Tariffs (taxes)Protective Tariffs (taxes)

Taxes on foreign Taxes on foreign made products made products

Congress passed Congress passed Hawley-Smoot TariffHawley-Smoot Tariff

Foreign countries Foreign countries responded with their responded with their own protective tariffs own protective tariffs decrease in US decrease in US

sales abroadsales abroad International trade International trade

decreased 30% by decreased 30% by 1933! 1933!

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