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Before The Great Crash
Gross national Product (GNP) – the value of goods and services produced in a nation during a specific period
GNP increased by 30% from 1922-1928 Led to reckless activities – 1 in 5
Americans owned a car
Stock Market Expansion
Economy was excellent in the 1920s Investors were enthusiastic with the stock
market – many stocks quadrupled in value
False Sense of Security
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
Election of 1928
Herbert Hoover – Republican Never held public office Oversaw America’s food production during
WWI Directed relief records post WWI Supported prohibition
Al Smith – Democrat 1st Catholic to run for Presidency Natural politician Supported Alcohol sales
Economic Weaknesses
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.
Credit and the Stock Market
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?
Federal Reserve
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
The Stock Market Crashes
October 24-29 stock market declined and officially crashes.
"Black Tuesday", October 29, 1929
People lost EVERYTHING
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
Example of a Great Depression Bank Run
Effects of the Crash
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