Download BELL QUIZ: USE PAGES 464-483 What nickname was given to the

BELL QUIZ: USE PAGES 464-483
1) What nickname was given to the day the
stock market collapsed on October 29,
1929?
2) How many U.S. banks collapsed by 1933?
3) Define “rugged individualism.”
4) What is a shantytown?
5) What is “direct relief” AND why did Pres.
Hoover not believe in it?
Objectives (Standard 6, Objective 1A)
Common Core Standard RH#2 and #7
Students will…
1. Understand how the Great Depression
affected the United States.
2. Investigate the impact of the Great
Depression on the United States and analyze
the major causes of the Great Depression.
3. Identify the problems and mistakes of
Americans living on credit.
BELL QUIZ ANSWERS
1) Black Tuesday.
2) 11,000 of 25,000 U.S. banks failed. (Also had
25% of population unemployed. That’s about
13 million workers)
3) It is the job of individuals to take care of
themselves and their families. It’s not the
governments job.
4) Little towns consisting of shacks. People lived
in whatever they could find.
5) Direct relief: cash payments or food provided
by the government to the poor. “Freebies.”
Hoover believed in “rugged individualism.”
Causes of the Great Depression
1) Drop in industry: steel, textiles, mining, lumber, housing
industry.
2) Overproduction of crops and inability to pay farm loans.
3) The availability of easy credit: living beyond their means.
4) Consumers buying less goods due to high prices and low
wages.
5) Unequal distribution of income: the rich got richer, the poor
got poorer. 70% of families earned less than $2,500 per year
(poverty level).
NOTE: The collapse of the stock market did NOT cause the Great
Depression!! Instead, the depression caused the stock
market to crash.
Economic terms and ideas to know
• Law of supply and demand:
A) Prices on goods increase when demand is high and
supply of goods is low.
*Example: The Sony PlayStation 3 demand was so high
that stores ran out of them. But that didn't stop
shoppers from buying them. Lots of people sold them
over the Internet for thousands of dollars and people
paid it. They paid it because they wanted it and there
was a limited supply.
B) Prices on goods decrease when demand is low and
supply of goods is abundant.
*Example: Trucks/SUV’s 5 years ago; current housing
industry.
1. Industries in Trouble
• Key basic industries like railroads, textiles, and steel had
barely made a profit during the 1920’s (post WWI).
• Many industries overproduced goods and had a large
supply to get rid of=lost $ on production.
• Railroads were losing out to new forms of transportation
(trucks, buses, and automobiles).
• Mining and lumbering were in less demand after WWI.
• Coal mining took a back seat to hydroelectric power, fuel
oil, and natural gas.
• The housing industry slowed down since less people
were building houses. When housing slows, so do jobs in
related industries, like cement, lumbering, furniture,
landscaping, roofing, etc.
2. Farmers
• During WWI, prices rose and demand for crops
such as wheat and corn soared. Farmers had
planted more and taken out loans to buy land,
seed and new equipment.
• Demand fell after WWI, and crop prices declined
by 40% or more.
• Farmers boosted production in hopes of selling
more, but this caused crop prices to decline even
more.
• Farmers defaulted on their loans, rural banks
began to fail, and auctions were held to recover
some of the bank’s losses.
3. Living on credit (debt)
• Credit (installment plan)=buy
now, pay later.
• Must pay for the price of the
purchased good + interest.
• Credit was easily available
and, so Americans racked up
a large consumer debt.
• Credit is easier to use than
saving cash for months or
years to buy the desired
product.
• Failure to pay
loan=repossession.
4. Consumers have less $ to spend
• Americans were buying less mainly because of
rising prices, lower or stagnant wages, and over
buying of goods on credit in the preceding
years.
• Factories overproduced goods, but the
American consumers could not afford to
purchase the goods that flooded the market.
5. Uneven distribution of income
• The middle and lower class wage workers got
poorer and poorer due to a large labor force
available to work for low wages.
• About 3/4 of American families were earning
less than $2,500 a year and were living below
the poverty level.
• Who is going to buy the modern goods flooding
the American markets?
What is Stock?
• At some point, just about every company needs to
raise money, whether to open up a West Coast sales
office, build a factory, or hire a crop of engineers.
• In each case, they have two choices: 1) Borrow the
money, or 2) raise it from investors by selling them a
stake (issuing shares of stock) in the company.
• When you own a share of stock, you are a part owner
in the company with a claim (however small it may be)
on every asset and every penny in earnings.
• XYZ Corp., for example, may have 2 billion shares
outstanding, and a stock price of $10. So the
company's total market capitalization is $20 billion.
(Technically, if you had an extra $20 billion lying
around, you could buy each share of stock, and own
the whole company.)
New York Stock Exchange (NYSE)
• The New York Stock Exchange
The largest and most prestigious exchange in the world
is the New York Stock Exchange (NYSE).
• The "Big Board" was founded over 200 years ago in
1792 with the signing of the Buttonwood Agreement
by 24 New York City stockbrokers and merchants.
• Currently the NYSE, with stocks like General Electric,
McDonald's, Citigroup, Coca-Cola, Gillette and Walmart, is the market of choice for the largest companies
in America.
NYSE
• The NYSE is the first type of exchange (as
we referred to above), where much of the
trading is done face-to-face on a trading
floor.
• Also referred to as a listed exchange.
• Orders come in through brokerage firms
that are members of the exchange and
flow down to floor brokers who go to a
specific spot on the floor where the stock
trades. At this location there is a specific
person known as the specialist whose job
is to match buyers and sellers.
• Prices are determined using an auction
method: the current price is the highest
amount any buyer is willing to pay and
the lowest price at which someone is
willing to sell.
NASDAQ
• The Nasdaq
The second type of exchange is the virtual
sort called an Over the Counter (OTC)
market, of which the Nasdaq is the most
popular.
• Trading is done through a computer and
telecommunications network of dealers. It
used to be that the largest companies
were listed only on the NYSE while all
other second tier stocks traded on the
other exchanges.
• The tech boom of the late '90s changed all
this; now the Nasdaq is home to several
big technology companies such as
Microsoft, Cisco, Intel, Dell and Oracle.
This has resulted in the Nasdaq becoming
a serious competitor to the NYSE.
Dow Jones Industrial Average
• The Dow Jones Industrial Average is the
average of 30 significant stocks traded on the
New York Stock Exchange and the Nasdaq.
• If these 30 stocks are doing well then the
entire stock market is probably doing well.
• If these 30 stocks are doing poorly then the
entire stock market is probably doing poorly.
http://www.msn.com/enus/money/stockdetails/fi125.1.MYNG.PINX?symbol=MYNG
&form=PRIDQL
The Causes of the 1929 Crash
1. Stocks were Overpriced: Many people believe
that stocks were overpriced and the crash
brought the share prices back to a normal level.
However, some studies using standard measures
of stock value, such as Price/Earnings ratios and
Price/Dividend ratios, argue that the share
prices were not too high.
The Causes of the 1929 Crash
2. Massive Fraud and Illegal Activity: A number
of people believe that fraud and illegal activity
was one of the causes of the 1929 Crash.
However, evidence revealed that there was
probably very little actual insider trading or
illegal manipulation.
The Causes of the 1929 Crash
3. Margin Buying: Margin buying is another
scapegoat for the cause of the Crash. However,
it is not the main reason because there was very
little margin outstanding relative to the value of
the market (the margin averaged less than five
percent of the market value).
The Causes of the 1929 Crash
4. Federal Reserve Policy: The new President of the
Federal Reserve Board Adolph Miller tightened the
monetary policy and set out to lower the stock prices
since he perceived that speculation led stocks to be
overpriced, causing damage to the economy.
Also, starting from the beginning of 1929, the interest
rate charged on broker loans rose tremendously. This
policy reduced the amount of broker loans that
originated from banks and lowered the liquidity of nonfinancial and other corporation that financed brokers and
dealers.
The Causes of the 1929 Crash
5. Public Officials' Repeated Statements Many public
officials commented that the stock prices were too
high. For example, the newly elected President of the
United States, Herbert Hoover, publicly stated that
stocks were overvalued and that speculation hurt the
economy. Hoover's statement suggested to the public
the lengths he was willing to go to control the stock
market.
These kinds of statements encouraged investors to
believe that the market would continue to be strong,
which could be one of the causes of the Crash.
Review
• Write your answers to the following questions
on a piece of paper and turn it in before you
leave:
1. List and briefly explain the 5 causes of the
Great Depression.
2. What dangers exist from buying goods on
credit?
3. True/False. The collapse of the stock market
caused the Great Depression.
http://www.youtube.com/watch?v=7E
PTCm9RVRM&safe=active
(The Crash of 1929)