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The Economy of the 1920’s and the Stock Market Crash What are the economic indicators used today to determine whether the economy is weak or strong? What do they tell us? Businesses making profits, Dow Jones (Stock Market), wages, changing of interest rates, buying/construction of new homes, sales, poverty & unemployment levels, GDP, GNP http://money.cnn.com/news/economy/index.html 1920s – Stock Market came to symbolize American prosperity Stock Market – rose steady after 1921 Surged in 1928/1929 – average price of stock rose 40% Hit its peak in September 1929 Real Wages – what money could actually buy had increased by 40% Unemployment – low – below 4/5% The economy was strong in the 1920’s, "We in America today are nearer to the Welfare Capitalism – policy of meeting workers’ right? Or was it?over Howpoverty could there have final triumph than ever needs with increased pay and benefits for the purpose been a depression afterofthis of before in the history anytime land.” of preventing union organizations prosperity? Paid supposed vacations, wageeconomic increases, health plans, English classes ~ Herbert Leaders in Business andHoover Politics (1928) – telling Name another time in history where this American public that economy would continue to be has happened. strong, people believed them Business cycle – there was a history of and will be recessions and panics after periods of prosperity Overproduction – companies had expanded too quickly Agriculture – doing poorly – never recovered from crash of 1920-21 Bought machinery & equipment during WWI Prices down – overproduction & surpluses Businesess – increased faster than people had money to buy it Automobile industry – slumped after 1925 Textile industry – too many goods, not enough demand Mining & Lumber – expanded during WWI, too much for peacetime Coal – overexpansion, bitter labor struggles, competition w/ new energy sources Housing Construction – down by 25% between 1928 & 1929 Unequal Distribution of Wealth – Many just getting by – 71% less than $2,500 – 80% with no savings What effects might this have? (Once G.D. hits, no $ to spend to revive economy & no $ to survive) Many workers – low wages, long hours, not great workings conditions despite improvements Easy Credit – People borrowed to buy new products, lived beyond their means Installment Buying – people bought products on credit and paid over time in installments Credit How do you get it? How does it increase the overall cost of the item? What are the consequences for those that can’t pay for their purchases on credit ? Stock Market – on rise, but was it real? Speculators – taking chances in the stock market or real estate – trying to make $ quickly Many people put life savings in because it looked like such a great opportunity Buy on margin – practice of buying stocks by paying 10-50% of the full price and borrowing the rest – banks made loans despite warnings Black Thursday October 24, 1929 Stock prices dropped, some worried, investors and leaders told people things would be ok Bankers pooled money and put million dollars worth of stock back into market – helped for a few days Black Tuesday October 29, 1929 The bottom drops out 16.4 million shares sold, prices plunged Collapse continued – Dow Jones (Sept – 381 to Nov – 198.7) Market doesn’t hit bottom until 1932 $14 Billion lost in one day