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Chapter 21 Sec 1 Bellringer Whatof economic factors and conditions made the Sale consumer goods declined; Banks failed; investors lost American economy appear prosperous in the rumors fears grew; investors 1920s? spread; money; consumers stopped began selling stocks; stock pricesin the What were the basic economic weaknesses buying; nearly 3 million High gross national low American economy in the lateproduct; 1920s? plunged Americans jobs;workers; rest unemployment;satisfied What events ledlost to thetheir stock market crash of of Uneven distribution of wealth; easy October 1929? the world wasofaffected performance the stock market credit; tootheeasy toofbuy stock oneconomy What were effects the crash on the of the United States and the world? margin THE GREAT CRASH 21.1 An Appearance of Prosperity Between 1922 and 1928 the U.S. gross national product, or total value of all goods and services, rose 40 percent. The value of stocks traded quadrupled over nine years. Overall unemployment remained low, averaging around five percent between 1923 and 1929. The steep rise in stock prices made people think the market would never drop. Union membership slowed as employers expanded welfare capitalism programs, or employee benefits. This feeling of prosperity encouraged leisure activities such as movies. The number of shares traded rose from 318 million in 1920 to over 1 billion in 1929. The 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 VS. Herbert Hoover Alfred Smith In what waysvs. didSmith the election of 1928 Hoover represent a conflict over values? • When Coolidge didn’t run for reelection in 1928, the Republicans choserepresented Herbert Hoover. different Hoover andeasily Smith • Hoover had been on Harding and Coolidge’s cabinets, had overseen America’s food production World backgrounds, religions, ideas;during each War I, and had an outstanding reputation as a businesslike administrator. appealed to different groups of • Hoover’s opponent was New York governor Al Smith, an outgoing politician with a strong Brooklyn accent, whose Americans. support came mostly from cities. was the first Catholic to run for president. He Do• Smith you think that the president should faced prejudice because of his religion, and because of his opposition to Prohibition. be responsible when major issues • Hoover easily won the election, but the race clearly demonstrated theUS? conflicts dividing the nation in that happen in the era. In what way was the easy availability of Wealth Distribution credit a blessing and a curse? It allowed Americans to by products, fueled Only a small # of people made money in the economic growth; when consumers could 20’s. not pay their debts, purchasing slowed; 1% Population=60% of the National Income warehouses were filled with goods. By 1929 70% were below a good standard Do of you think advertising played a significant living. roleFarmers in mounting consumer debt? and Coal miners were some of the Yes,hardest peoplehit.wanted to buy things that were advertised. Credit and the Stock Market Company Company A A Example: Example: Loss How it all works? Investor buys 100 shares in Company A @ If the stock price rose to $15 then If the Stock price dropped to $5 a $10 a share. Total Price $1000. the buyer would be atwould $1500be at share then the buyer Investor would put down $500 and borrow allowing them to pay back the $500 dollars. This means that the $500 from a stockbroker. borrowed and$500 makedollars a $500and Buying on$500 margin. buyer would loose dollar profit. make just enough to pay back the loan. What was a margin call? The Federal Reserve Demand for payment of a margin loan if a stock’s value fell below a Nations Central Bank certain point. Today the Federal Reserve Board puts strict Why doon you many people limits thethink practice of buying on margin. ignored Babson’s of amade it Late 1920’s the Fed.warnings Reserve Board much more difficult stock market crash?to buy stock on margin. Roger Babson warned America that aso crash Because the economy had been was in the future. strong they probably thought any slump would be temporary. Impact of the Stock Market Crash Video Stock Market crashes •September 3, 1929 was the peak in the market. Stock Market Crashes •Thursday, October 24, 1929 some nervous investors began selling their stocks. •October 29, 1929 Black Tuesday •Within a week the market had dropped in value by about $16 billion. ofpeople the 1929 Stock Market WhyCauses did some expect economic trouble in 1929? Crash Sales were declining; rumors that big Financial Factors Economic Factors investors were going toStock take money out markets rise in midPoor distribution of 1920’s wealth of the market. Speculation in stock Many consumers increases crash Do relied you on think credita stock market Margin buying Credit dried up could occur today? encouraged by Federal Consumer spending Reserve policies Yes,dropped. large #’s of people could sell stock Stock prices rise to andIndustry pricesstruggled would plunge; No,levels there are unrealistic safeguards to prevent it. The Effects of the Crash What did the stock ImpactImpact on Individuals Impact onmarket Business crash people were ruined The crash crushed businesses, haveMany on individual investors? In the end many people owed because banks couldn’t lend enormous amounts of money to money. Almost all suffered; lostConsumers savings; went their brokers. also cut back their spending on everything but into debt Effects on Banks essentials and companies were The crash triggered a banking crisis. When investors couldn’t repay margins, banks lost money, too. These failures drove many banks out of business. forced to lay off workers. In the year after the crash, American wages dropped by $4 billion and nearly 3 million people lost their jobs. Closing Bring a •$16Calculator billion that was lost in 1929 would be equal to $180 billion dollars today. Time! Next •A dollar today compared to 1929 would be worth $11.38.