Download The Stock Market Crash, the Great Depression, and the New Deal

The Stock Market Crash, the Great Depression, and the New Deal Review I
(Please use answers to questions # 1 – 39)
The ________ ____________ was a period of severe economic hardship, which lasted in the
United States from 1929 to World War ___. Three major factors caused the Great Depression: 1) the
_______ ___________ crash, 2) the near collapse of the nation’s ___________ system, 3) high
_____________ ___________. After World War I, the United States was a _________ power. During
the early twenties, Americans were very optimistic about the nation’s __________. As a result, stock
prices steadily rose and the _________ __________ boomed. In the early years of the decade, there
was an excessive expansion of __________. This meant it was simply _____ ________ for Americans get
credit. Two consequences of easy credit were Americans made investments with ___________ money, and
there was ________________ in the stock market.
______________ is the act of buying something at a low price in the hope of selling it later at a
profit. One way people make money from stock is by _____________. The largest stock market in the
United States is the _______ _________ __________ ______________. Between 1920 and 1929
prices on the New York Stock Exchange steadily ___________. Consequently, during this period many
stock market speculators became very ___________. Some of these investors became greedy and
decided to buy _________ on margin. Buying stock on margin meant the investors were buying stock on
___________. Margin buying led to _______________ in the stock market. When prices on the New
York Stock Exchange dropped in 1929, many investors ________ their stock in hopes of paying off their
loans. This action caused stock prices to ________ even lower. This downward cycle in the stock market
caused the New York Stock Exchange to _________.
The _______ stock market crash had several different causes. First, although business was
booming, many investments in the stock market were made with ____________ money. This led to
____________________. Second, this overspeculation was made worse, because there was an excessive
(too much) expansion of __________. Third, business failures led to __________________. Fourth,
savings deposits in banks had been invested in the ________ ___________. Fifth, when the stock market
collapsed, many of these banks literally ran out of _________ and were forced to close. The stock market
crash had two major consequences. First, clients panicked and tried to __________ their money from the
banks, but the banks often had no money to give them. Second, because of the lack of available funds,
there were _____ new investments.
The ________ __________ System functions as the central bank of the United States. A
Federal Reserve Bank is a _________ bank, which means only a ________ can have accounts and obtain
loans from the Federal Reserve. If a bank needs to borrow money, it may do so from the _________
__________ Bank. However, a bank must pay ____________ on its loans from the Federal Reserve. The
___________ appoints the members of the Federal Reserve Board, which sets the policy for the twelve
Federal Reserve banks to follow. Two functions of the Federal Reserve Board are: 1) to oversee the
actions of the __________ __________ ________, 2) to set the __________ rate, which banks must
pay to borrow money from the Federal Reserve.
The Federal Reserve Board’s power to set interest rates is important, because it enables the
Federal Reserve to control the nation’s ____________ ___________. If the Federal Reserve Board
believes the American economy is slowing down, then it may ___________ interest rates. Lower
_________ _______ encourage people to borrow money. When people spend this borrowed money, they
increase the __________ (choose either supply or demand) for goods and services. Increased demand
causes employers to hire ________ (choose either more or fewer) workers to make additional goods.
Thereby, the ____________ ____________ stimulates or jumpstarts the economy simply by cutting
interest rates.
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If the Federal Reserve Board believes the American economy is overheating and thereby causing
inflation, then it may __________ interest rates. ___________ is the economic condition when prices
increase and the value of the dollar decreases. In other words, during inflationary times, the dollar buys
______ than it did previously. The Federal Reserve _________ interest rates to combat inflation,
because it wants to discourage people from borrowing money. If people borrow less, then they spend
(choose either more or less) ______. A decrease in spending means a decrease in _________ (choose
either supply or demand). If demand drops and supply stays the same, then prices should (choose either
rise or fall) __________. Thereby, the Federal Reserve lowers _____________ by raising interest
rates.
During the late twenties, the Federal Reserve tried to discourage overspeculation in the _______
market. Unfortunately, its efforts failed. The Federal Reserve was/was not able to prevent the 1929
stock market crash from triggering the Great Depression.
When the New York Stock Exchange crashed, hundreds of ______ failed. These banks failed
because: 1) they had invested people’s _________ _________ in the stock market, 2) they had loaned
money to stock speculators who were buying stock on _________. Because of the bank failure after the
stock market crash, American lost ________ in the nation’s banking system. When they lost confidence in
the banks, thousands of Americans rushed to _______ their savings from the banks, before they closed.
These “runs on the banks” placed even more pressure on the nation’s banking system and caused even more
banks to _______.
During the first three years of the Great Depression, approximately ______ banks failed. At least
_____ million Americans lost their savings. This widespread collapse of the American banking system
between 1929 and 1932 led to a severe contraction in the nation’s ______ ______. Deflation resulted.
A ____________ _________ is a tax on imports that is so high Americans cannot afford to buy
foreign goods. After the 1929 stock market crash, Congress tried to help American business by passing
the __________-_________ Tariff. This tariff law set the ________ tariff rates in American history.
Congress hoped the Hawley-Smoot Tariff would encourage Americans to buy __________-made goods.
Instead, it caused __________ countries to retaliate or get back at the United States by passing high
tariffs of their own. These retaliatory tariffs made American exports so expensive that foreigners
could/could not afford to buy American goods. In short, the erection of trade barriers by all of the
world’s major industrial owners after the 1929 stock market crash strangled ______ _______.
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