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Chapter Section 25 Section 1 1 Chapter 8, Section 1 Causes of the Depression How did the prosperity of the 1920s give way to the Great Depression? During the 1920s, many Americans enjoyed what seemed like an endless era of prosperity. But in 1929, the stock market crashed. Production fell, unemployment rose, and the economy went into a period of dramatic decline. Years after the Great Depression began, periodic contraction was seen as part of the business cycle. Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 The 1920’s were fun, frivolous and prosperous. Easy credit lead people to purchase goods they can’t pay for. By 1929, Americans racked up $7 billion in personal debt — 6 times more than 1915. Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 The Stock Market During the 1920’s many people played the market. Bull Market- Stock prices rose steadily. Bear Market- Downward trend Stock Speculation- buying and selling stock for a quick profit Margin Buying- buying stock with borrowed money Overconfidence! Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 The Stock Market Crash October 29, 1929: • 16 million shares were sold on “Black Tuesday.” • Billions of dollars were lost in a few hours. • Brokers attempted to get money that investors owed (from margin buying) • Investors sold more stock at huge losses to raise funds. • By the end of the day, investors lost over $30 billion Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 The Banking Crisis • Banks are investors too! • Borrowers default on loans. • People fear that their money will be lost so they run to banks and attempt to withdraw their funds. • Banks don’t have enough $ on hand which causes a panic. • Bank runs cause banks to fail. Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 Unemployment Lack of money + no more credit = less purchasing • Less purchasing = less production • Less production = fewer jobs • By 1933, the unemployment rate reached 25%. • Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 Other Factors The Income Gap • Huge gap between the wealthiest Americans and the rest. • Majority of people did not have the buying power to boost economy. Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 Hawley-Smoot Tariff • Highest in history. • Meant to protect U.S. industry. The strategy was a mistake. Other nations retaliated and raised tariffs as well. The world would not buy American goods! Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 Global Depression: Most of the world was experiencing economic depression, largely due to WWI debts and decreased international trade. Causes of the Depression The Cold War Begins Chapter Section 25 Section 1 1 • Depressions and recessions are an inevitable part of the business cycle in a capitalist system. • This was not a typical up & down! Causes of the Depression The Cold War Begins