The Roots of the Great Depression

Essential Questions: - What caused the stock market crash of 1929?- What other factors brought about the Great Depression?The Root Causes of the Great DepressionThe World BeforeThose with money were investing in the stock marketRoaring 20s!Emergence of middle classLuxury goods marketsAverage Americans saw little to no change in incomeSociety liberalizingMusic, fashion, mores, women

The Great Depression1929-194125% unemployment 50% for African-AmericansFranklin Delano Roosevelt (D) elected in 1933Begins New DealChanges role of governmentBefore, government believed its job was to support businessAfter, government took an active role in the welfare (health) of its peopleSocial SecurityUnemploymentLater: medicaid, free reduced lunch

Stock MarketWhen you buy stock you own a part of the companyAs company makes money, so do youApple went from $7 to $700Investors bought on marginBorrowed money to buy stockCould make major $$Or lose badly!Dow Jones goes from 60 to 400 during 20sMany put life savings into stockMost dont do research

The CrashThe bubble bursts on Black TuesdayOctober 29th 1929In part caused by declining home prices and values and real estate bubblesSound familiar? Eerie!Much of stock value is based on investor confidenceIf people dont believe in it, value dropsPeople began abandoning what they saw were sinking ships"We are broke. Last April I was worth $100,000. Today I am $24,000 in the red."

So what?How could a decline in the stock market affect average people?People who have savings in stock suddenly have noneConsumer confidence dropsAmericans pull back on spendingLess spending means businesses have to lay off peoplePeople begin to pull money out of banksThose banks run out of moneyAverage people lose their savingsPeople without money dont buy stuffMore jobs lost

The Crash Leads To DepressionOver 9,000 banks fail during the 1930sBank Runs!Savings and money wiped outTrade dropsSmoot-Hawley Tariff America tries to protect its industriesBuying power of average American dropsIndustrial production down 50%Ecological disasterFarmers go bankrupt Drought + prices Unequal distribution of wealthRich lose, poor still losingBanks unregulatedMake risks, and lose it all

GDP = C + I + E + GGDP stands for Gross Domestic ProductValue of all goods and services created in a countryC = Consumer spendingI = Investment by industry (stuff made, purchased)E = Excess of exports over imports (you want more exports)G = Government spending

Question:What would happen to GDP if G increased?

Herbert HooverPresident 1928-1932Started amidst prosperity, left as a national shameLast Republican until 1952Believed the market would correct the depressionCore beliefs fundamentally different than what was neededFaith in the invisible handDuring Hoovers Presidency the Depression worsened drasticallyLittle government interventionGovernment spending as part of GDP1929: 11%2010: 45%

YearGDP in billionsUnemployment rateFederal Spendingin billions1929$203.63.2%$3.11930$183.58.7%$3.31931$169.315.9%$3.61932$144.223.6%$4.71933$141.525%$4.6

QuestionsWhat factor of GDP do you think was most hurt by the stock market crash? Why do you think so?Using the GDP formula, how would you stimulate the economy?Interpret the cartoon to the left. What is the message of the cartoonist?Do you think it is fair?

Exit Ticket (5-10 mins.):What caused the stock market crash of 1929?What other factors brought about the Great Depression?