1. Chapter 13.1

2. Hidden Economic Problems in the Roaring Twenties
During the Roaring Twenties, many Americans enjoyed what seemed like limitless prosperity. Then, in October 1929, the mighty bull market crashed. As production fell and unemployment rose, the U.S. economy lurched into a period of dramatic decline.

4. The Stock Market Hits Bottom
By 1929, some economists were observing that soaring stock prices were based on little more than confidence. The prices had no basis in reality. Although other experts disagreed, it became clear that too much money was being poured into stock speculation, as investors gambled (often with money they did not even have) on high-risk stocks in hopes of turning a quick profit. If the market’s upward climb suddenly reversed course, many investors would face economic devastation.

5. The Great Depression Begins
The stock market crash marked the beginning of the Great Depression, a period lasting from 1929 to 1941 in which the economy faltered and unemployment soared. Though it did not start the depression by itself, the crash sparked a chain of events that quickened the collapse of the U.S. economy.

6. According to the Per Capita Income and Spending graph were Americans as a whole going into debt during the depression, or were they 'just getting by'?

8. The Causes of the Great Depression
Historians and economists struggle to identify the exact causes of the Great Depression. Some have stressed a single root cause in their explanations of the financial crisis. The economist Milton Friedman believed that the depression resulted from the contraction in the money supply. The twin events of the stock market crash in 1929 and the run of bank failures in 1930, added to the Federal Reserve’s monetary policy decisions, left too little money in circulation for the nation’s economic needs.

9. In fact, there were signs that the economy was in trouble.
Main Idea
During the 1920’s, rising wealth and a booming stock market gave Americans a false sense of faith in the economy.
In fact, there were signs that the economy was in trouble.

10. Welfare Capitalism
Employers thought they could prevent strikes and keep up productivity with great benefits for workers
Raised wages, provided health plans, recreation programs and English classes for recent immigrants
“Company unions” were created to voice any concerns instead of organized labor unions

11. Economic Danger Signs Uneven prosperity Buying on credit
Playing the stock market
Too many goods, too little demand
Trouble for farmers and workers

12. Fewer small businesses
Uneven Prosperity
The rich got richer
Huge corporations dominated industry
Fewer small businesses

13. Buying on Credit
Americans believed they could count on future income to cover debt
Purchased using installment plans
Credit implies that the money will be paid. It does not necessarily mean the money currently exists. Often advertised as “buy now, pay later”.

14. Playing the Stock Market
Rapid increase of stock prices led to:
Speculation
Buying on margin
The time period lent itself to the idea that people could “get rich quick”. Everyday people were hoping for large returns on risky investments.
When investors bought on margin, the amount that they borrowed was at very high interest rates. This means they would ultimately “owe” significantly more than the amount initially borrowed.

15. Too Many Goods, Too Little Demand
Rising productivity brought prosperity BUT it also created a surplus of goods
Manufacturers had more goods than consumers could buy.
Examples of consumer goods

16. Trouble for Farmers and Workers
Farmers were unable to pay debts
Defaulted on bank loans
Caused rural banks to fail
Farm bill vetoed by Coolidge that would have helped farmers

17. Causes of the Great Depression Uneven prosperity Buying on credit
Playing the stock market
Too many goods, too little demand
Trouble for farmers and workers

18. The Economy Appears Healthy
Herbert Hoover won the 1928 election and benefited from the years of prosperity under Republican presidents.
Americans had high confidence in the economy in the 1920’s.
People made risky investments based on the idea that “everyone ought to be rich”
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

19. The Bubble Bursts
October 29, 1929
Stock market lost $30 billion
Beginning of “The Great Depression”
In October 1929, panic selling caused the United States stock market to crash. The crash led to a worldwide economic crisis called the Great Depression.
Dow Jones Industrial Average – an average of stock prices of major industries
Early 1928—climbed to 191
Continued to rise; by September it was 381

20. Black Thursday Black Thursday
After September’s peak, stock prices fell slowly
By October 23, the average dropped 23 points in an hour
October 24, 1929 (THURSDAY) – investors were afraid and began to sell
Stock prices fell
Ex: GE share went from $400 to $283
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

21. Black Tuesday Black Tuesday October 29, 1929 (TUESDAY)
To stop the panic, a group of bankers pooled their money to buy stock
Prices stabilized for a few days
October 29, 1929 (TUESDAY)
16.4 million shares were sold (a record!)
Normally only 4-8 million shares sold per day
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

22. Economics
The Crash of 1929 brought an sudden end to the economic expansion of the 1920s and brought on the Great Depression.
Following the Crash, political leaders debated whether to fight the Depression through higher government spending or to rely on the natural operation of the business cycle to restore prosperity.
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

23. Today’s Economics
The American economy alternates between periods of higher growth and periods of slower growth, or contraction.
The federal government, through its policies on taxing, spending, and the money supply, seeks to prevent shocks to the economy such as the Crash of 1929.
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

24. From Riches to Ruin
People’s whose lives depended on the stock market lost everything
People who were not invested heavily into the stock market experienced cutbacks but did not necessarily lose everything.
1929 – 4 million out of 120 million people invested in the stock market
First to suffer from the Crash
Great Depression – severe economic decline that lasted from 1929 until the U.S. entry into WWII in
Millions lost jobs, homes, farms
Income and profits fell
American factories closed
Thousands of workers lost jobs or had pay cut
August 1931 – Henry Ford closed the Detroit automobile factory
75,000 people lost their jobs in Detroit
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

25. Gross National Product (GNP)
Total value of goods and services a country produces annually (per year)
1929 – GNP = $103,000,000
1933 – GNP = $56,000,000
2013 – GNP = $17,057,500,000,000
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

26. Banks Close Unpaid farm loans had already ruined many rural banks
Now city banks were in trouble
People rush to withdraw money
Banks depend on the fact that not everyone will want their money at the same time.
Could not pay
Banks closed
Over 5, 500 banks closed
$9 million from savings accounts vanished
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

27. Impact on the world
Banking, manufacturing and trade were interdependent around the world
Turn to page 381 to read the section.
Why did Americans have so much confidence in the economy in the 1920s? They had faith in business, which at the time, was thriving.

28. Causes
Overspeculation
Government Policies
An Unstable Economy

29. Effects Millions of workers lose jobs GNP falls dramatically
Many banks fail
Increased poverty leads to health and social problems
Global economy suffers

30. 15. Which factor led to underconsumption during the late 1920s?
1. expansion of credit
2. poor agricultural conditions
3. uneven distribution of wealth
4. shortage of consumer products
3. uneven distribution of wealth

31. 16. What fueled the high stock prices of the 1920s?
1. chance
2. confidence
3. patriotism
4. skill
2. confidence

32. 13. How did the Great Depression affect American workers?
1. They had to learn to use new technology.
2. Almost one fourth of all workers were unemployed.
3. Work conditions declined in safety and cleanliness.
4. They were forced to work longer shifts for lower wages
2. Almost one fourth of all workers were unemployed.

33. 4. a lack of government interference in the economy
17. According to John Maynard Keynes, what was the main cause of the Great Depression?
1. over-speculation
2. uneven distribution of wealth
3. a sudden decrease in the money supply
4. a lack of government interference in the economy
4. a lack of government interference in the economy