Start of the Great Depression

Jumpstartin’ Your Brain On the outside, the 1920’s looked like a time period where people were living better than ever. What were some potential problems with the lifestyle of the 20’s, especially consumerism?

Walk me through last class. What happened with the stock market?

Stock Market: Build Up 1928- Herbert Hoover is elected president (formerly ran the Food Administration) Bull Market- A period of time where stock prices continuously rise Buying on Margin- Buying stock based on credit Speculation- Investing in stocks in hopes that prices will quickly rise so you can sell for a quick profit.

What determines the price of something?

Stock Market: Fall Down At the end of 1929, the stock market began to slow down and speculators sold their stocks to make a profit Prices overall started to fall People who bought on margin had to sell to cover their debts Prices fell even more Black Tuesday: October 29, 1929. Biggest day of loss

Primary Source “He was sitting in front of the now-stilled ticker-tape machine, with his head buried in his hands. Ticker tape was strewn around him on the floor, and the place… looked as if it hadn’t been swept out in a week. Groucho [Marx, a famous comedian] tapped [him] on the shoulder and said, ‘Aren’t you the fellow who said nothing could go wrong?’ ‘I guess I made a mistake,’ the broker wearily replied. ‘No, I’m the one who made a mistake,’ snapped Groucho. ‘I listened to you.’” Who was at fault for the crash, investors buying at the margin or brokers that encouraged them?

Roots: Uneven Income (people ran out of money) In 1929, 2/3 of families earned less than $2,500 a year Paying off installment plans slowed the amount of product a family could buy Companies that couldn’t sell product laid off workers “Cyclical Effect”

Roots: Foreign Trade Policy We want to help American businesses get back on their feet. What can you as the government do? Smoot-Hawley Tariff- legislation that raised tariffs higher than they had ever been Tariff- a tax on imported goods Did NOT work. Other countries raised their tariffs and we couldn’t sell our goods

Roots: Banking Failures and the Fed Banks had invested in the stock market Bank Runs- People are worried that the bank won’t have their money when they need it, so they pull all their money out. Then, the bank fails. Federal Reserve- The central bank of the U.S. In charge of the interest rates for borrowing money. Interest rates were kept low, then switched to high after the economy had crashed

Pudding, The Proof is in Read the sections “What caused the Great Depression” and “Money, Banking, and Deflation” in the red book (pages 128-9) Answer the questions on the next slide (also on the note sheet)

Pudding, The Proof is in 1. What event is often the first to come to mind when people think of the Great Depression? 2. Was the crash big enough to cause the Great Depression? 3. What specific trade policies do some economists suggest were the cause of the Great Depression? 4. Were protectionist trade policies alone enough to cause the Great Depression? 5. What were some of the excesses of the 1920s that some economic historians suggest caused the Great Depression? 6. What is the one explanation for the Great Depression that has stood the test of time? 7. What happens if the money supply (stock) shrinks?