United States History 11 The Great Depression Begins: “The Great Crash” Unit 3, Chapter 11, Section 1

Main Idea The stock market crash of 1929 revealed weaknesses in the American economy and helped trigger a spreading economic crisis

The Appearance of Prosperity between 1922 & 1928 GNP rose 30% 1 in 5 owned an auto in 1929 Unemployment very low between 1923 & 1929: 3% Stock market expansion: stocks quadrupled from 1920- 1929 Faith in business and government: public confidence in government and pro-business policies remained high The election of 1928: Hoover won an easy victory against Al Smith

Economic Weaknesses Wealth distribution: 1% of the population grew income 60% from 1920-1929 Credit and the stock market: “buying on margin” allowed investors to borrow from stockbrokers The Federal Reserve: tried to deter margin loans

Causes of the 1929 Stock Market Crash Economic Factors Financial factors Stock markets rise in mid-1920s Speculation in stock increases Margin buying encouraged by Federal Reserve policies Stock prices rise to unrealistic levels Poor distribution of wealth Many consumers relied on credit Credit dried up Consumer spending dropped Industry struggled

The Effects of the Crash The impact on individuals: huge fortunes disappeared; as stock prices fell borrowed money had to be paid back, shares sold for less than paid Effects on banks: people rushed to withdraw money, banks had invested in stocks also, could not pay, went bankrupt Effects on business: struggling businesses could not rely on banks, consumers were not spending Effects overseas: struggling Europe after WWI was thrown backward; high tariff did more harm than good