1930’s Chapter 11 Notes

 Gross national Product (GNP) – the value of goods and services produced in a nation during a specific period  GNP increased by 30% from  Led to reckless activities – 1 in 5 Americans owned a car

 Economy was excellent in the 1920s  Investors were enthusiastic with the stock market – many stocks quadrupled in value

 Positive economic trends masked the trouble that lay ahead.  The stock market had been booming for a decade  Corporate profits soared  Unemployment was low  Welfare capitalism and credit increased workers buying power

 Herbert Hoover – Republican  Never held public office  Oversaw America’s food production during WWI  Directed relief records post WWI  Supported prohibition  Al Smith – Democrat  1 st Catholic to run for Presidency  Natural politician  Supported Alcohol sales

AL SMITHHERBERT HOOVER

 1%- wealthiest with a 60% growth  Most workers only had 8% growth  Easy credit allowed people to buy automobiles, radios, vacuum cleaners, and other products rolling off assembly lines.

 Investors used credit to purchase stocks  Buying on margin – buying stocks with loans from stock brokers  Example: investor wants to buy 100 shares of stock at $10 a share. Pays stock broker $500 and borrows $500 from stock broker. Investor is to pay off debt when they sell stock  Why is this risky?

 Nation’s central bank  Regulates nations money supply in order to promote healthy economic activity  Tried to regulate economy but corporations loaned money to stock brokers to loan money to investors

 October stock market declined and officially crashes.  " Black Tuesday ", October 29, 1929

 BANK RUNS:  People Panic  Withdraw all of their money at the same time  Banks ran out of money to give back to their customers  BANK RUN EXAMPLE BANK RUN EXAMPLE  Example of a Great Depression Bank Run

 Margin buyers had to pay loans back  Many lost their ENTIRE life savings  Banks – many were invested in the market and depositors withdrew their money which took all money from the banks.  Business – banks couldn’t give loans, consumers stopped spending, layoffs followed due to decline of incoming revenue  Overseas – couldn’t loan money overseas, industrialization stopped across Europe

 1. People had a false sense of security  2. The Stock Market Crash (Black Tuesday)  3. Buying stock “on margin” and other mismanagement of money