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Chapter 9.1 Causes of the Great Depression

Chapter 9.1 Causes of the Great Depression. The Election of 1928:. Hoover Dry Protestant Quaker Prosperity “ 2 cars in every garage”. Smith Wet Catholic No experience when it came to dealing with the depression. Hoover won by 6 million votes 444 to 87 in the Electoral College.

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Chapter 9.1 Causes of the Great Depression

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  1. Chapter 9.1 Causes of the Great Depression The Election of 1928: Hoover Dry Protestant Quaker Prosperity “2 cars in every garage” Smith Wet Catholic No experience when it came to dealing with the depression Hoover won by 6 million votes 444 to 87 in the Electoral College

  2. The Stock Market The Bull Market: rising Stock market, people making money, willingness to take a chance. The Bear Market – opposite of the Bull Market, falling stock prices, people are more cautious, not willing to spend or take a chance. Buying on Margin – not having enough money to buy all the stock, but putting a down payment on it, and then selling it at a profit.

  3. Margin call: The brokers demand to be paid for the entire amount of the stock purchase. Speculation: betting on the Stock Market to do better in the future, making riskier investments hoping to make a huge profit very quickly.

  4. Check for Understanding: Respond by showing me 1 to 4 fingers for the correct answer. Show me when I ask you to show me, not before. This is a period of trading in the stock market when prices are rising, people are more will to take a chance, hoping to make a profit: 1. Bear Market 2. Bull Market 3. Margin Call 4. Speculation Answer: #2

  5. Get with your partner (A – B) and discuss this question and come up with an answer: Is the Stock Market today a Bull Market or a Bear market?Be ready to justify your answer. My Opinion – and I am never wrong… Bear Market – times are tough, recession

  6. The Stock Market was a reflection of how the economy was doing, how people felt about the economic health of our nation. The Stock Market crash was a signal that things were not going well, and would get worse as the years went on. Why? What caused the Stock Market to crash and the Great Depression?

  7. Overproductionand low demand leads to layoffs Low wages reduce consumer buying power The Great Depression Unemploymentreduces buying power further High tariffs restrict foreign demand for American goods

  8. The Great Crash • September 1929 – Professional investors sensed danger and began to sell off stocks • October 21, 1929 – Monday, Brokers make margin calls on investors. • October 24, 1929 – Thursday, Black Thursday – stocks plummet • October 29th– Black Tuesday – the Stock Market officially crashes • $10-$15 billion lost in one day • 2 weeks later $30 billion

  9. Bank Failures: Banks were weakened financially in 2 ways: 1) They lent money to speculators 2) They invested depositor’s money in the Stock Market. • Banks lost the money. • Depositors lacked confidence in the banks. • People made a “run” on their banks. • 1st week – 3,000 banks failed - %10 of the nation’s banks

  10. Roots of the Great Depression: • Uneven distribution of wealth. • In 1929 the top %5 of all American households earned %30 of the nation’s income. About 2/3rds of families earned less than $2,300 a year. • Many families began to rely on the installment plan for large purchases. When their income fell or they lost their job, they could not pay the payments.

  11. The Loss of Export Sales: • Banks made high interest loans to stock speculators. • They did not lend to foreign companies. • Foreign companies buy less from the US • This lead to fewer jobs in the U.S. • Hawley – Smoot Tariff (highest in U.S. history) • High tariff (tax) on imports. • US buys less foreign products • Foreign nations put tariff on U.S. goods • Everyone is hurt.

  12. Mistakes of the Federal Reserve: • Kept the interest rates low instead of raising them to slow the economy. • Banks made risky loans - cheap rates • Low interest rates sent a message to business leaders that the economy was still growing, which led to overproduction. • When the Depression hit and people lost their jobs, the Federal Reserve tried to lower rates, but it was too late – the damage to the economy was done.

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