The Great Depression 1929- 1941 Depression Depression - an economy with high unemployment, falling income, failing business, decline in production and.
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The Great Depression The Great Depression 1929-19411929-1941
DepressionDepression
- an economy with high - an economy with high unemployment, falling income, unemployment, falling income, failing business, decline in failing business, decline in production and sales.production and sales.
The Great Depression
- An extreme economic slump - An extreme economic slump in America in the 1930sin America in the 1930s
Causes of Causes of The Great DepressionThe Great Depression
1. Consumer Debt2. Income Gap3. Overproduction4. Global Depression5. Stock Market Crash –Oct.
29th 1929 – immediate cause or trigger.
6. Banking Crisis 7. Business Cycle
1. Consumer Debt1. Consumer Debt
After WWI, there was an increased demand for goods but in actual fact people could not
afford to buy all of the goods they wanted.
SOLUTION? Installment Plan – buy now, pay later.
The uneven The uneven distribution distribution of wealth of wealth
didn’t stop didn’t stop the poor and the poor and
middle class middle class from wantingfrom wanting
to possess to possess luxury items, luxury items, such as cars such as cars and radios…and radios…
By the end of the By the end of the 1920s, 60% of the 1920s, 60% of the cars and 80% of cars and 80% of the radios were the radios were
bought on bought on installment creditinstallment credit..
Once the economy began to slow down, and
people started losing their jobs, they were not able pay off their debts.
2. Income Gap2. Income Gap Consumers lacked sufficient income to
purchase goods; farmers’ income fell. Workers’ income failed to keep pace
with prices. Wages were as little Wages were as little as 20 – 25 cents per hour! as 20 – 25 cents per hour!
Even the best employer Ford Even the best employer Ford Motor Company paid only Motor Company paid only $5.00/Day for a 6AM-6PM $5.00/Day for a 6AM-6PM shift!shift!
Income distribution in 1929Income distribution in 19291
5
29
65
$10,000 and Over
$5,000-$9,999$2,000-$4,999
$1,999 and under
Wheat Prices 1925-1933
0
0.5
1
1.5
2
1925
1926
1927
1928
1929
1930
1931
1932
1933
Year
Pri
ce p
er B
ushe
l (in
dolla
rs)
Question 1: How much did a bushel of wheat cost in 1925?1932?
How might this graph explain why farmers were hit so hard during the Great Depression?
3. Overproduction of Goods3. Overproduction of Goods
High demand for goods created increase High demand for goods created increase in production. in production.
During WWI farmers and businesses During WWI farmers and businesses produced excess of goods. After the war produced excess of goods. After the war the demand for goods fell.the demand for goods fell.
This led to overproduction, people This led to overproduction, people weren’t buying, businesses lost money, weren’t buying, businesses lost money, laid off workers and eventually went out laid off workers and eventually went out of business.of business.
Unemployment 1925-1933
02468
101214
1925 1926 1927 1928 1929 1930 1931 1932
Year
Une
mpl
oyed
(in
mill
ions
)
Question 2: How many people were unemployed in 1925? In 1929? In 1932?
What conclusion can you draw from that?
4. Global Depression4. Global Depression World trade declined in the World trade declined in the
1920s.1920s. European countries had massive European countries had massive
war debts to pay war debts to pay European consumers were not European consumers were not
able to buy American goods.able to buy American goods. American industries were stuck American industries were stuck
with surplus goods. with surplus goods.
5. Stock Market Crash5. Stock Market Crash
Just as one could buy goods on Just as one could buy goods on credit, it was easy to borrow credit, it was easy to borrow money money to invest in the stock market; to invest in the stock market; This was called This was called “margin investing”“margin investing” (or “buying on margin.”)(or “buying on margin.”)
Small investors Small investors were more eager to were more eager to
invest ininvest inthe Stock Market the Stock Market in large numbers in large numbers
because the because the “margin “margin
requirement”requirement” was only 10%.was only 10%.
This meant that you This meant that you would buy $1,000 would buy $1,000
worth of stock with worth of stock with only 10% down, only 10% down,
or $100. or $100.
People leapt at the People leapt at the chance to invest chance to invest
in business!in business!
How did the Stock Market How did the Stock Market Crash?Crash?
March 1928 – Stock March 1928 – Stock prices soared and the prices soared and the number of shares number of shares traded rose sharplytraded rose sharply
People rush to investPeople rush to invest Stock prices were Stock prices were
400 percent higher400 percent higher Investors became Investors became
cautious, stop cautious, stop investinginvesting
Fewer buyers drove Fewer buyers drove prices downprices down
October 29October 29thth, 1929 , 1929 ““Black Tuesday””
Confidence in stock Confidence in stock market failedmarket failed
Investors began Investors began selling stocksselling stocks
Margin calls- Banks Margin calls- Banks wanted their money wanted their money from brokers, and from brokers, and brokers wanted brokers wanted their money from their money from investorsinvestors..
Neither was able to Neither was able to pay and the stock pay and the stock market crashed.market crashed.
Stock Prices 1925-1933
0
5
10
15
20
25
30
1925 1926 1927 1928 1929 1930 1931 1932 1933
Year
Aver
age
Mon
tly V
alue
$ Great Crash
Question 3: What was the average stock value in 1929? 1932?
What can you infer from the information in this graph?
Why did the market crash?Why did the market crash?
Many people bought stocks on Many people bought stocks on marginmargin——like a loanlike a loan
Companies lied about their profits — No Companies lied about their profits — No regulationregulation
Republican Presidents in the 1920s Republican Presidents in the 1920s believed in believed in laissezlaissez fairefaire—no control on —no control on businesses businesses
Stock market was not regulated by Stock market was not regulated by governmentgovernment
With the With the loss ofloss of confidenceconfidence in stocks, in stocks, people began to lose people began to lose
confidence in the confidence in the security of their money security of their money
being held in banks.being held in banks.
Customers raced to Customers raced to their banks to their banks to
withdraw withdraw their savings. their savings.
6. Bank Failures6. Bank Failures Banks made unsound loans; bank
failures resulted when the loans could not be repaid.
25% of the Banks in the US closed 25% of the Banks in the US closed Bank Runs and banks closing their Bank Runs and banks closing their
doorsdoorsled to people led to people losing their losing their life savings.life savings.
Bank Failures
0
500
1000
1500
2000
2500
3000
3500
4000
450019
22
1924
1926
1928
1930
1932
1934
1936
1938
1940
1942
1944
7. Business Cycle7. Business Cycle Regular ups and downs in the economy.Regular ups and downs in the economy. The economy naturally goes through ups The economy naturally goes through ups
and downs ( Boom and Bust periods )and downs ( Boom and Bust periods )
BOOM/PROSPERITY/PEAKBOOM/PROSPERITY/PEAK HIGH DEMAND – Leads to -HIGH DEMAND – Leads to - MORE MORE
PRODUCTION which leads to HIGHER PRODUCTION which leads to HIGHER EMPLOYMENT and MORE DEMAND but it EMPLOYMENT and MORE DEMAND but it eventually produces INFLATION eventually produces INFLATION
Business CycleBusiness Cycle
SLOWDOWN/BustSLOWDOWN/Bust INFLATION/OVERPRODUCTIONINFLATION/OVERPRODUCTION
Leads to LESS PRODUCTION = LAY Leads to LESS PRODUCTION = LAY OFFS = LESS SPENDING = LOWER OFFS = LESS SPENDING = LOWER
CONFIDENCE = LESS INVESTMENT = CONFIDENCE = LESS INVESTMENT = HIGHER UNEMPLOYMENT UNTIL HIGHER UNEMPLOYMENT UNTIL
SURPLUSES ARE USED UP and the SURPLUSES ARE USED UP and the economy recoverseconomy recovers
So the economy in a free So the economy in a free enterprise goes through enterprise goes through
economic prosperity, economic prosperity, recessions and recessions and
depressions as a result of a depressions as a result of a regular business cycle. regular business cycle.
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