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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
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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.
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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
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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
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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.
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Unemployment
Lack of money +
no more credit =
less purchasing
• Less purchasing =
less production
• Less production =
fewer jobs
• By 1933, the unemployment rate
reached 25%.
•
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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.
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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
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The Cold
War Begins
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Global Depression:
Most of the world was experiencing economic
depression, largely due to WWI debts and decreased
international trade.
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• 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