BOOM (Prosperity) Stock Prices Soar in Unregulated Market: “Buying on Margin,” “Insider Trading,” Businesses Expand Production Further Federal Reserve Keeps Interest Rates Low: Easy Credit for Individuals & Businesses Businesses Expand Production: Build More Factories/Stores, Hire More Workers High Consumer Spending (Cash in Victory Bonds, Installment Buying) Laissez-faire Gov. Policies… Low Taxes

The Circular Flow of Economic Activity Labor $ Businesses (Producers/ Employers) Workers/ Consumers $ Products

Bust (Great Depression) Farmers Produce Surplus in 1920s… Low Crop Prices

Decline in Construction

Bust (Great Depression) Farmers Produce Surplus in 1920s… Low Crop Prices Decline in Construction of New Homes Domestic Demand Begins to Drop Investors Buy U.S. Stocks Instead of Lending to Europe Europeans Can’t Afford to Buy American Products

Hawley-Smoot Tariff (1930) Tariff Increases Hawley-Smoot Tariff (1930) October 1929… President Hoover publicly pledged to sign the Hawley-Smoot Tariff which would raise tariffs on some goods as high as 60%.

Bust (Great Depression) Farmers Produce Surplus in 1920s… Low Crop Prices Decline in Construction of New Homes Domestic Demand Begins to Drop Investors Buy U.S. Stocks Instead of Lending to Europe Europeans Can’t Afford to Buy American Products Businesses Cut Back on Production… Lay Off Workers Domestic Demand Drops Even More Businesses Overvalued… Stock Market Crashes

The Stock Market Crash October 24: “Black Tuesday,” Dow Jones Dropped 12.8% as 16.4 million shares were traded October 29: “Black Thursday,” Dow Jones Dropped an additional 12%, losing $14 billion in value Total Losses were $30 billion in one week (10 times the Federal Budget in 1929)

Bust (Great Depression) Farmers Produce Surplus in 1920s… Low Crop Prices Decline in Construction of New Homes Domestic Demand Begins to Drop Investors Buy U.S. Stocks Instead of Lending to Europe Europeans Can’t Afford to Buy American Products Businesses Cut Back on Production… Lay Off Workers Domestic Demand Drops Even More Businesses Overvalued… Stock Market Crashes Stock Investors Can’t Repay Loans to Banks

Bank Runs Banks Only Keep a Fraction of Depositors’ Cash on Hand… Banks Cannot Give Everyone Their Money at the Same Time

Bust (Great Depression) Farmers Produce Surplus in 1920s… Low Crop Prices Decline in Construction of New Homes Domestic Demand Begins to Drop Investors Buy U.S. Stocks Instead of Lending to Europe Europeans Can’t Afford to Buy American Products Businesses Cut Back on Production… Lay Off Workers Domestic Demand Drops Even More Businesses Overvalued… Stock Market Crashes Stock Investors Can’t Repay Loans to Banks Bank “Runs” Occur as Banks Run Out of Cash

Bust (Great Depression) Farmers Produce Surplus in 1920s… Low Crop Prices Decline in Construction of New Homes Domestic Demand Begins to Drop Investors Buy U.S. Stocks Instead of Lending to Europe Europeans Can’t Afford to Buy American Products Businesses Cut Back on Production… Lay Off Workers Domestic Demand Drops Even More Businesses Overvalued… Stock Market Crashes Stock Investors Can’t Repay Loans to Banks Bank “Runs” Occur as Banks Run Out of Cash Panicked Consumers Stop Spending/Investing

Business Failures

Bust (Great Depression) Farmers Produce Surplus in 1920s… Low Crop Prices Decline in Construction of New Homes Domestic Demand Begins to Drop Investors Buy U.S. Stocks Instead of Lending to Europe Europeans Can’t Afford to Buy American Products Businesses Cut Back on Production… Lay Off Workers Domestic Demand Drops Even More Businesses Overvalued… Stock Market Crashes Stock Investors Can’t Repay Loans to Banks Bank “Runs” Occur as Banks Run Out of Cash Panicked Consumers Stop Spending/Investing Businesses Fail

1/3 of the Nation Becomes Unemployed! Unemployment 1/3 of the Nation Becomes Unemployed!

Bust (Great Depression) Farmers Produce Surplus in 1920s… Low Crop Prices Decline in Construction of New Homes Domestic Demand Begins to Drop Investors Buy U.S. Stocks Instead of Lending to Europe Europeans Can’t Afford to Buy American Products Businesses Cut Back on Production… Lay Off Workers Domestic Demand Drops Even More Businesses Overvalued… Stock Market Crashes Stock Investors Can’t Repay Loans to Banks Bank “Runs” Occur as Banks Run Out of Cash Panicked Consumers Stop Spending/Investing Businesses Fail Unemployment Increases