THE NATION’S SICK ECONOMY

The Great Depression

Do Now What would happen if you spent more

money that you actually had?

What happens when many people and businesses are in that situation?

Examine the issues 1. What jobs are recession proof?

What things might you do is you cannot get a job with an established company?

What social services are available today compared to the unemployed people of 1929?

Objectives Summarize the critical problems threatening

the American economy in the late 1920’s.

Describe the causes of the stock market crash and the Great Depression.

Explain how the Great Depression affected the economy in the United States and throughout the world.

Economic Troubles on the Horizon Industries in Trouble

Basic industries such as railroads, textiles and steel barely made a profit in the late 1920’s

There was less demand for mining and lumbering after World War I

Economic Troubles on the Horizon Farmers Need a Lift

During the war demand for crops such as wheat and corn were high

Farmers took out loans for more equipment and land

After WWI, the demand for such crops declined and farmers were left with debt—farmers could not pay loans and many of their farms went into foreclosure

Economic Troubles on the Horizon _______________________

Federal price supports for key products such as wheat, corn, cotton and tobacco

The government would buy surplus crops at a guaranteed prices and sell them on the world market

President Coolidge vetoed the bill twice

Question What would a free market economist

say about the Congress’s bill for federal price supports?

Economic Troubles on the Horizon Living on Credit

Credit—the arrangement in which consumers agreed to buy now and pay later for purchases

When people had trouble paying off debt, they cut back on spending

Economic Troubles on the Horizon Uneven distribution of income

During the 1920’s rich got richer and the poor got poorer

More than 70% of the nation’s families earned less than $2,500 per year (considered a decent standard of living)

Many people could not afford the goods that manufactures made

Hoover Takes the Nation Election of 1928

______________( R) vs. ______________(D)

Hoover wins following the years of prosperity in the 1920’s

Hoover Takes the Nation Dreams of riches in

the Stock Market ____________________

The most widely used barometer of the stock market’s health

Made of the 30 largest firms traded on the stock market

Hoover Takes the Nation What is speculation?

What does it mean to buy on margin?

Hoover Takes the Nation Speculation —people bought stocks

and bonds in hope to make a quick profit

Buying on margin —paying a small percentage of a stocks price as a down payment and borrowing the rest The unrestrained buying and selling fueled

the market’s upward spiral

Think! What can speculation and buying on

margin be compared to today?

Homework Contrast the Great Depression with

today’s recession. Use the text book and internet to complete a Venn diagram.

What is a recession? Two consecutive quarters of negative growth in the GDP.

The Stock Market Crashes ________________

October 29, 1929 the bottom fell out of the market and people lost confidence

Shareholders rushed to sell their stocks

People who bought on margin were left with debt and many lost their life savings

Financial Collapse The Great

Depression Period from 1929-

1940 which the economy plummeted and unemployment skyrocketed

Financial Collapse Banks and Business Failures

Many people withdrew money from banks—only to find out that the banks had invested it in the stock market

600 banks closed in 1929

Unemployment went from 3% in 1929 to 25% in 1933

Financial Collapse Worldwide shock waves

Depression was not limited the United States

Europeans were still trying to recover from WWI

Germany was forced to pay war reparations—the Great Depression compounded the problems by limiting America’s ability to import European goods as well as making it difficult to sell American farm products and manufactured goods aboard

Financial Collapse _________________________

Highest protective tariff in history

Designed to protect American farmers and industry, it had the opposite effect

Europeans retaliated with their own tariff and worldwide trade had failed more than 40 %

Finical Collapse Causes of the Great Depression:

______________________________________ ________________________________________ _________________________________ ____________________________________

Close Can a recession or a depression be

prevented? If you were president, what policies would you put in place to ensure economic growth?