THE GREAT DEPRESSION

1930’sChapter 11 Notes

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

Who Won?

AL SMITH HERBERT HOOVER

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

3 Main Causes for the Great Depression

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