Guided Reading Quiz 1. Who ran for president for the Republicans when Coolidge declined to run again? 2. What is a bull market? 3. How were many new investors able to affording buying stock? 4. What is a bank run? 5. This was a key cause of the Great Depression and led to the loss of jobs as sales declined. Bonus (10 points) What economic tool did the government use to TRY to help American businesses at the beginning of the Great Depression?

Causes of the Great Depression and Hoover’s Response Goal 9

Essential Idea There were four main causes to the Great Depression: overspeculation, banks failing, overproduction, and European policies.

Rugged Individualism The next president after Coolidge: Hebert Hoover What he believed in: Rugged individualism – the government should stay out of economic affairs (laissez- faire) and let people take care of themselves Effect #1: The Roaring Twenties Effect #2: The Great Depression

Causes of Great Depression There were ____ main causes to the ________________________. O- B- O- E-

Hoover Inspires Investment O- Overspeculation What is overspeculation? Buying stocks and selling them when they increase in value (doing it too much) Why is it bad? Speculating too much makes the stock market unstable

Buying on Margin How were so many people able to overspeculate? Buying on margin – taking out loans from stockbrokers and banks to buy stock

Margin Call Margin calls – demanding immediate payment for the loans When might stockbrokers or banks issue a margin call?

Black Tuesday October 21, 1929: Stock prices fell, stockbrokers responded by issuing margin calls People panicked, and stock prices fell Black Tuesday: The worst day of the stock market crash BILLION dollars was lost

What was the stock market doing before Black Tuesday? How far did the DJIA drop on Black Tuesday? How far did it drop overall?

Banks Fail B- Banks fail How were banks and overspeculation related? Banks had loaned $6 billion to investors How did the stock market crash hurt banks? Investors could no longer pay back loans, and many banks collapsed

Bank Runs Bank runs: Huge amounts of people ran to the banks to withdraw their savings before the bank collapsed

Where’s the Money? Why didn’t the banks have the money? The money was loaned out to other people Effect on bank runs on banks: Thousands more banks collapsed Effect of the bank runs on people: people lost their life savings

Overproduction O- Overproduction What is overproduction? Companies producing more than they can sell

People Stop Buying Why were people NOT buying enough products? People lost money in the stock market crash People lost money when banks collapsed People’s money was already tied up making payments on installment plans

Businesses Collapsing As a result, many businesses ________________. When people stopped ______ products, businesses had to ___________ workers.

Downward Spiral Businesses: Had to lay off workers because they were not selling enough product People: Could not afford to buy products because they had been laid off ETC

Remember the Circular Flow Chart? (From Civics) Product Market Factor Market Consumer SectorBusiness Sector

Using Tariffs to Protect American Businesses E- Economic Policies New law by Congress: Hawley-Smoot Tariff What it did: Raised tariffs (taxes on foreign imports) to record levels

Tariff Backfires Intended effect: Make people buy more American products (as opposed to foreign products) and help the economy Actual effect: Other countries raised their tariffs, which made it harder for American companies to sell overseas (hurting the economy even more)

Hoover Responds Program: Reconstruction Finance Corporation (RFC) Purpose: Make loans to banks and businesses to keep them from collapsing Why it failed: It did not loan enough money to slow down the economic decline

Direct Relief Program: Direct Relief Purpose: For the first time, the federal government gave money directly to the citzens Why it failed: Too little, too late

People Getting Desperate Why Hoover did not do more, and do it sooner? Hoover believed in “rugged individualism” He thought Americans could get through economic problems on their own (he actually though Americans would be insulted by hand-outs) The Result: Many people began to go hungry, organize marches, and rob grocery stores Hoover & the Great Depression

Bonus for Veterans Government Law after World War I: The law said that WWI veterans would receive a $1000 bonus in 1945 Veterans during the Great Depression: Veterans began demanding IMMEDIATE payment of the $1000 bonus The Bonus Army: A group of 1000 World War I veterans that marched to Washington, D.C. to demand their bonuses What happened: Wearing their old uniforms, the veterans gathered outside the Capitol building

Bonus Armies What happened: The military, led by General Douglas MacArthur, used tanks, soldiers, and tear gas to clear out the veterans Affect on President Hoover’s image? VERY NEGATIVE Bonus Army