BELL QUIZ: USE PAGES )What nickname was given to the day the stock market collapsed on October 29, 1929? 2)How many U.S. banks collapsed by 1933? 3)Define “rugged individualism.” 4)What is a shantytown? 5)What is “direct relief” AND why did Pres. Hoover not believe in it?

Objectives (Standard 6, Objective 1A) Common Core Standard RH#2 and #7 Students will… 1.Understand how the Great Depression affected the United States. 2.Investigate the impact of the Great Depression on the United States and analyze the major causes of the Great Depression. 3.Identify the problems and mistakes of Americans living on credit.

BELL QUIZ ANSWERS 1)Black Tuesday. 2)11,000 of 25,000 U.S. banks failed. (Also had 25% of population unemployed. That’s about 13 million workers) 3)It is the job of individuals to take care of themselves and their families. It’s not the governments job. 4) Little towns consisting of shacks. People lived in whatever they could find. 5)Direct relief: cash payments or food provided by the government to the poor. “Freebies.” Hoover believed in “rugged individualism.”

Causes of the Great Depression 1)Drop in industry: steel, textiles, mining, lumber, housing industry. 2)Overproduction of crops and inability to pay farm loans. 3)The availability of easy credit: living beyond their means. 4)Consumers buying less goods due to high prices and low wages. 5)Unequal distribution of income: the rich got richer, the poor got poorer. 70% of families earned less than $2,500 per year (poverty level). NOTE: The collapse of the stock market did NOT cause the Great Depression!! Instead, the depression caused the stock market to crash.

Economic terms and ideas to know Law of supply and demand: A) Prices on goods increase when demand is high and supply of goods is low. *Example: The Sony PlayStation 3 demand was so high that stores ran out of them. But that didn't stop shoppers from buying them. Lots of people sold them over the Internet for thousands of dollars and people paid it. They paid it because they wanted it and there was a limited supply. B) Prices on goods decrease when demand is low and supply of goods is abundant. *Example: Trucks/SUV’s 5 years ago; current housing industry.

1. Industries in Trouble Key basic industries like railroads, textiles, and steel had barely made a profit during the 1920’s (post WWI). Many industries overproduced goods and had a large supply to get rid of=lost $ on production. Railroads were losing out to new forms of transportation (trucks, buses, and automobiles). Mining and lumbering were in less demand after WWI. Coal mining took a back seat to hydroelectric power, fuel oil, and natural gas. The housing industry slowed down since less people were building houses. When housing slows, so do jobs in related industries, like cement, lumbering, furniture, landscaping, roofing, etc.

2. Farmers During WWI, prices rose and demand for crops such as wheat and corn soared. Farmers had planted more and taken out loans to buy land, seed and new equipment. Demand fell after WWI, and crop prices declined by 40% or more. Farmers boosted production in hopes of selling more, but this caused crop prices to decline even more. Farmers defaulted on their loans, rural banks began to fail, and auctions were held to recover some of the bank’s losses.

3. Living on credit (debt) Credit (installment plan)=buy now, pay later. Must pay for the price of the purchased good + interest. Credit was easily available and, so Americans racked up a large consumer debt. Credit is easier to use than saving cash for months or years to buy the desired product. Failure to pay loan=repossession.

4. Consumers have less $ to spend Americans were buying less mainly because of rising prices, lower or stagnant wages, and over buying of goods on credit in the preceding years. Factories overproduced goods, but the American consumers could not afford to purchase the goods that flooded the market.

5. Uneven distribution of income The middle and lower class wage workers got poorer and poorer due to a large labor force available to work for low wages. About 3/4 of American families were earning less than $2,500 a year and were living below the poverty level. Who is going to buy the modern goods flooding the American markets?

What is Stock? At some point, just about every company needs to raise money, whether to open up a West Coast sales office, build a factory, or hire a crop of engineers. In each case, they have two choices: 1) Borrow the money, or 2) raise it from investors by selling them a stake (issuing shares of stock) in the company. When you own a share of stock, you are a part owner in the company with a claim (however small it may be) on every asset and every penny in earnings. XYZ Corp., for example, may have 2 billion shares outstanding, and a stock price of $10. So the company's total market capitalization is $20 billion. (Technically, if you had an extra $20 billion lying around, you could buy each share of stock, and own the whole company.)

New York Stock Exchange (NYSE) The New York Stock Exchange The largest and most prestigious exchange in the world is the New York Stock Exchange (NYSE). The "Big Board" was founded over 200 years ago in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the NYSE, with stocks like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette and Wal- mart, is the market of choice for the largest companies in America.

NYSE The NYSE is the first type of exchange (as we referred to above), where much of the trading is done face-to-face on a trading floor. Also referred to as a listed exchange. Orders come in through brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location there is a specific person known as the specialist whose job is to match buyers and sellers. Prices are determined using an auction method: the current price is the highest amount any buyer is willing to pay and the lowest price at which someone is willing to sell.

NASDAQ The Nasdaq The second type of exchange is the virtual sort called an Over the Counter (OTC) market, of which the Nasdaq is the most popular. Trading is done through a computer and telecommunications network of dealers. It used to be that the largest companies were listed only on the NYSE while all other second tier stocks traded on the other exchanges. The tech boom of the late '90s changed all this; now the Nasdaq is home to several big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. This has resulted in the Nasdaq becoming a serious competitor to the NYSE.

Dow Jones Industrial Average The Dow Jones Industrial Average is the average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. If these 30 stocks are doing well then the entire stock market is probably doing well. If these 30 stocks are doing poorly then the entire stock market is probably doing poorly.

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The Causes of the 1929 Crash 1. Stocks were Overpriced: Many people believe that stocks were overpriced and the crash brought the share prices back to a normal level. However, some studies using standard measures of stock value, such as Price/Earnings ratios and Price/Dividend ratios, argue that the share prices were not too high.

The Causes of the 1929 Crash 2. Massive Fraud and Illegal Activity: A number of people believe that fraud and illegal activity was one of the causes of the 1929 Crash. However, evidence revealed that there was probably very little actual insider trading or illegal manipulation.

The Causes of the 1929 Crash 3. Margin Buying: Margin buying is another scapegoat for the cause of the Crash. However, it is not the main reason because there was very little margin outstanding relative to the value of the market (the margin averaged less than five percent of the market value).

The Causes of the 1929 Crash 4. Federal Reserve Policy: The new President of the Federal Reserve Board Adolph Miller tightened the monetary policy and set out to lower the stock prices since he perceived that speculation led stocks to be overpriced, causing damage to the economy. Also, starting from the beginning of 1929, the interest rate charged on broker loans rose tremendously. This policy reduced the amount of broker loans that originated from banks and lowered the liquidity of non- financial and other corporation that financed brokers and dealers.

The Causes of the 1929 Crash 5. Public Officials' Repeated Statements Many public officials commented that the stock prices were too high. For example, the newly elected President of the United States, Herbert Hoover, publicly stated that stocks were overvalued and that speculation hurt the economy. Hoover's statement suggested to the public the lengths he was willing to go to control the stock market. These kinds of statements encouraged investors to believe that the market would continue to be strong, which could be one of the causes of the Crash.

Review Write your answers to the following questions on a piece of paper and turn it in before you leave: 1.List and briefly explain the 5 causes of the Great Depression. 2.What dangers exist from buying goods on credit? 3.True/False. The collapse of the stock market caused the Great Depression.

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