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The Wall Street Crash. Causes. Many people buy shares in the hope to make quick money If a business is thought to do well in the future, shares are bought to sell later at a profit (called speculating) You buy shares in a business so you get a share of their profits (called a dividend) - PowerPoint PPT Presentation
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The Wall Street Crash
CausesMany people buy shares in the hope to
make quick moneyIf a business is thought to do well in the
future, shares are bought to sell later at a profit (called speculating)
You buy shares in a business so you get a share of their profits (called a dividend)
If the business does well – the shares will rise in value
If the business does bad – the shares will decrease in value
Continued…In 1929 there was a general ‘BOOM’ as
the USA provided loans and goods to Europe to aid in the recovery after WWI
If confidence in the market increases – share prices rise
Ordinary people think shares are easy money so they borrow from banks to buy shares – to sell later for a profit ($9 billion was lent by banks to speculators in 1929)
Continued…Very dangerous because if share prices
fall Speculators will sell off their shares because they owe the bank – cannot risk losing
August/September, Charles Babson predicted there were too many goods and not enough customers – so prices, profits and dividends would fall
5th September 1929 someone started selling a large amount of shares – this caused people to panic
Continued…More shares on the market –
decreased valueTHEREFOREConfidence in the market is
shakenRESULTSpeculators panic and sell their
shares at a loss
Continued…Eventually shares are worthless – no-
one is prepared to buy themBanks try to buy spare shares to
restore confidence in market – doesn’t work
RESULTThousands of people left bankruptSo banks have to close down (1929 –
659 banks close, 1930 – 1352 banks close)
CRASH
Questions – answers to be written in your booksHow did the businesses try to keep
demand high?Why did this fail?What could the government have
done to prevent a crash happening?
The Depression
Because of the crashSpeculators are bankruptSome banks close (400,000 people
lost saving when the Bank of New York crashed in 1930)
Other banks only survive by calling back the loans they had made to businesses
Businesses have to scale down – some even close
Unemployment rises – by 1933 14 million in the USA
ProtectionismGovernment introduces/increases tariffs
on foreign good – this makes them more expensive
Encourages people to by domestic goodsThis policy is known as ‘Protectionism’
because it is about ‘protecting’ your home economy
This means foreign businesses suffer from the decrease in trade with the USA
Reduces market confidence – share prices start to fall
Political consequencesDemocracies become inward looking
and defensive◦ USA◦ Britain◦ France
Dictatorships become aggressive and expansionist◦ Germany◦ Italy◦ Japan
