1. The Nation’s Sick Economy
Chapter 22 Section 1

2. I Economic Trouble on the Horizon A. Industries in Trouble
Prosperity in 20s had weaknesses GD
Basic industries not making profits due to new comp. (trucks/private auto.)
Construction of new home peaked and fell steadily
Housing is econ indic. Because it has spinoff effects on other indust. (lumber/appliances/labor/construction supply & tools)
As housing declined so did other businesses that depended on construction

3. B. Farmers Need a Lift
WWI increased demand for food but w. the end of the war demand sunk
Farmers increase prod. In hopes of selling moreprices fall more
Could not pay loansrural banks forecloselose home & farms
Fed gov’t passes McNary-Haugen Bill that called for fed. Price supports
Price support=- support of certain price levels at or above market values by the fed, gov’t
Bill vetoed by Coolidge

4. C. Consumers Have Less Money to Spend
As incomes fell ppl had less $$ to spend on goods & services
Production increases increase divide between rich and poor

5. D. Living on Credit
Many Americans living beyond heir means during 1920s because they bought on credit
Credit= arrangement in which consumers agreed to buy now and pay later on purchases via monthly payments that include interest charges
Easy availability of creditamericans piling on consumer debtconsumers cut back on spending

6. E. Uneven Distribution of Income
Consumers also spend less because their incomes were not rising
Fams could not cont. to afford household products that were being produced
As this was happening wealthiest 1% rose by took in 1/3 of nations income
Unequal dist. Of wealth meant most Amer. cannot part. In econ advancement of 1920s

7. II the Stock Market Comes Tumbling Down
Economists were warning of series weaknesses in the economy while most Americans remained unaware

8. A. Dreams of Riches in the Stock Market
Prices on stock market rise steadilyAmer. rush to buy stock in “bull market”
Bull Market= rising stock market prices
Many stock owners were avg Amer. hoping to strike it rich
Investors engage in speculation
Speculation= engagement in risky business transactions on the chances of big profits

9. Investors also begin to buy stocks on margin
Buying on margin= paying small % of stock’s price as down payment and borrowing the rest (often borrowed 75% of stocks purchase price)
This worked as long as stocks rose because they could make large profit and pay back the loan
However, if the stock declines, there was no way to pay off the loan

10. B. Black Tuesday
Stocks peak and begin to declineinvestors sold stocks and pulled out of the stock market
Oct 24th large plunge in market as panicked investors unload their shares
Black Tuesday= the bottom falls out as ppl and corp. rush to sell their shares and market plunges
Ppl who bought on credit/margin acquired large debt
Ppl who invested their savings lost it all

11. C. Causes of the Great Depression
Great Depression= period from in which econ was in severe decline and million of ppl were out of work
Stock market did not cause the depression but it helped speed up its collapse
Factors of the Great Depression
Old industrial base- outdates infrastructure
Crisis in farming sector- surplus of goods after WWI
Easy avail. Of credit- ppl went into buying goods on installment plans
Unequal distribution of income- little $ in hands of working ppl who were maj. Of consumers

12. III Financial Collapse
Amer. Began to withdraw their $$ from banks banks close because they cannot cover amount of withdrawals
Fed. Gov’t did not insure ppls bank accountsppl lost their $$ when banks closed
Other businesses begin to closeunemployment rises

13. A. Worldwide Shock Waves
Europe also suffered during 20s due to high debt of WWI
Germ had to pay reparations
GD made worse because US couldn’t buy European goods
Congress tries to help by passing the Hawley-Smoot Tariff= highest protective tariff in US history
Supposed to help American business but it did the opposite as other countries passed their own protec. Tariffs

14. Europeans bought less Amer. goods because of debt and tariffs
Hoover proposes moratorium on allied war debts and Germ. Rep.
Moratorium= postponement of payments
Britain and other Europeans leave the gold standard
Paper $ no longer exchanged for goldgold drops in value