YeeH

aw

Gam

e!

Find a partner and

pick up one of the

handouts from the

front of the room.

You only need one handout per pair.

Today is going to be AWESOME!!! I have a

really good feeling…

Causes of the

Great Depression

Today’s LEQ: What caused

the most severe economic

crisis in American history?

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Purpose of stock market is to provide businesses with money to expand

Stock market was booming in the 1920s;

result was a bull market

Bull

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Many thought there was

no limit to how high the

bull market could goPeople put their savings

in stock and even borrowed money to invest! This is called

buying on the margin.

For example, a buyer may

pay 10% of stock’s price

and borrow the other 90%

from a stock broker.

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Easy borrowing encouraged speculation – making

risky investments in hopes of earning large

profits. Hoped to make big money really quickly

Artificially drove up stock prices

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Stock market peaked in

September 1929 then

started to fall – created

a bear market HUGE drop on Black

Tuesday in October

1929! Fearful of losing

everything, investors

rushed to sell their stocks, pushing prices

even lower

Bear

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As prices fell, stockbrokers

demanded loans be repaid;

investors could not make

enough selling their stocks

to repay their loans. Many sold their homes, cars,

etc. to pay their debts

Even businesses affected –

those companies that invested

their profits went bankrupt

Stock Market Crash was a

key cause but not the only

cause… http://www.youtube.com/watch?

v=zSfzFWU5LbY

Stock Market Crash triggered banking crisis

In the 1920s, banks loaned

money to stockbrokers, who

in turn loaned that money

to individual investors…

Bad loans piled up and

depositors lost confidence

in their local banks Resulted in bank runs

Once bank ran out of cash,

it closed its doors. Millions

saw their savings vanish.

Banki

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Spend

By 1920, most American

factories used assembly line

method of mass production.

Output per worker increased

32% by 1929! Resulted in overproduction

– more products created

than people could afford to

buy How would you graph

this? Widening gap between rich

and poor; For a time, many

Americans used credit to

buy cars, radios, etc.

Too M

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for

Sale

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Spend

By 1929, buying spree was

over Many were deep in debt

Even the rich bought less

because they already owned

everything they needed

Economy was showing

signs of underconsumption –

people not buying as much

as economy was producing

How would you graph

this?

Farm

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and

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Farmers first to feel the pain

Troubles started after WWI;

American farmers supplied food for

soldiers and war-torn Europe; after

WWI, consumption decreased and

prices dropped.How would you graph this?

Problems of underconsumption

spread to industry Production declined by 38% by end

of 1930; many businesses went

bankrupt Many workers found themselves

unemployed (from 3% in 1929 to

25% in 1933) Vicious downward spiral had started

- truly DEPRESSING situation…

The B

IG

Quest

ion…

Could the Great Depression have been avoided???

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Role: Economic Advisor

Audience: President Hoover,

Congress, and the Chairman

of the Federal Reserve

Format: Speech Topic: Explain to President

Hoover, Congress, and the

Fed why their actions thus far

have been counteractive in

preventing a Great Depression. Convince them

to follow your recommendations and be sure

to discuss both fiscal policy

and monetary policy.