Journal What is the “stock market”? potato farmers had a excellent year, what will happen to the price of potatoes? What economic concept is this an example of? What happens to our economy when many people make more money?

Causes of the Great Depression What were the major causes of the Great Depression?

Cause 1- The Great Crash Analysts warned that the inflated stock market could not continue forever. In 1929 many investors began to sell their stocks while they could still get high prices for them. There were more people wanting to sell than people wanting to buy This lead to “panic selling.” On October 29th, 1929 alone, stocks fell 14 billion dollars. “Black Tuesday” This led some banks and people who invested their money into the market to lose everything

“Black Tuesday” Oct 29th 1929

Great Crash What was the average stock value in 1929? 1932?

Cause 2. Overproduction & Disparity in Wealth Small farmers suffered greatly throughout the 1920s, purchased expensive equipment on credit. Couldn’t make $ on crops As early as the summer of 1929 the economy showed signs of overproduction (supply was outpacing demand). In 1929 the wealthiest 1 percent earned the same as the bottom 42 percent. Greatly effected the circular flow!

3. Weak Banking Structure Banks were mostly unregulated (without laws to keep them in check) Unregulated Banking institutions lent huge amounts of money for stock purchases. When the stock market failed people could not repay the banks. 6,000 banks failed in the late 1920s. Many people simply lost all of the money they had in savings.

“Bank Run” = trying to pull all of your money out before the bank goes under

4. Ineffective Government Policies Tax policies favored the wealthy. Trusts (monopolies) were not challenged under anti-trust laws. Laissez faire (free for all economy) style of government. Banks were not insured or regulated

“Trickle Down Theory” The theory that money poured into the highest part of the economic pyramid will trickle down to everyone. Ex: Govt gives tax breaks and money to big business, they will in turn expand and hire workers. Often times in econ crisis, this does not work.

Tomorrow- The results For now, get a “graphing the Great Depression” handout

Hoover’s approach the crisis: Hoover believed in Laissez Faire and Trickle Down Theory Policies gave money and loans to banks and business hoping they would invest. Most of his policies were voluntary.