Great Depression Study Guide

Why were stock market investors in the 1920s sensitive to any fall in stock prices?

Investors were uneasy about any fall in the price of stocks because it meant they might be unable to make money quickly to repay their loans

Stock Market

system for buying and selling shares of companies

Bull Market

long period of rising stock prices

Margin

a small cash down payment that investors used to buy stocks

Leverage

using borrowed money to increase your profit

This type of leverage is great in a favorable (bull) market, but it works against you in an unfavorable (bear) market.

Margin Call

demanding that the investor repay the loan immediately

Speculation

investors bet on the market climbing and sold whatever stock they had in an effort to make a quick profit.

Great Crash

Lack of investors made stock value drop stockbrokers advised their customers of margin calls, customers responded by placing their stocks up for sale, causing the stock market to plummet further.

Black Tuesday

Stock prices fell drastically on October 29, 1929,resulting in a $10 to $15 billion loss in value

The Great Crash and Banks

Stock market crashed weakened nation’s bank

Banks lost money on their investments, and speculators defaulted on loans

Government did not insure bank deposits, customers lost their money if a bank closed.

What caused Banks to collapse?

Bank runs resulted as many bank customers withdrew their money at the same time

How did the stock market crash weaken the nation’s banks?

The stock market crash caused the banks to lose money on their investments, and speculators defaulted on bank loans. Because the government did not insure bank deposits, customers lost their money if a bank closed. Bank runs resulted as many bank customers withdrew their money at the same time, causing the bank to collapse

Roots of Depression

Overproduction, uneven distribution of wealth, low consumption, low work wages, and lay offs

uneven distribution of wealth

In 1929 the top 5% of American households earned 30% of the country’s income

More than two-thirds (67%) of the nation’s families earned less than $2,500 a year.

Hawley-Smoot Tariff

Raised taxes on imports, resulting in foreign tariffs being placed and Americans not purchasing good from abroad

Federal Reserve

Lowered interest rates, encouraged banks to make risky loans and misled business owners into thinking the economy was still expanding

How did the Federal Reserve Board help cause the Depression?

Lowering the interest rate instead of raising it helped cause the Depression in two ways. First, it encouraged banks to make risky loans. Second, it made it appear as if the economy was still thriving, which caused businesses to borrow money to further expand their production

Depression Worsens

Private charities offered food to the poor
Americans became homeless due to being unable to pay rent or mortgage

Homeless towns were called Hoovervilles, as hoover was blamed

Dust Bowl

A terrible drought in the Great Plains, beginning in 1932

Many Midwestern farmers and Great Plains farmers lost their farms, causing them to move to California

Hoover’s Refusal

Hoover refused to increase government spending or taxes. He feared that deficit spending would actually delay an economic recovery

Political Consequences

Republicans lost 49 seats and their majority in the House of Representatives (1930)

Bonus Army

17,000 World War I veterans, who gathered in Washington, D.C., in the spring and summer of 1932 to demand early cash-payment redemption of their service certificates

Election of 1932

- FDR: 22,809,638 (42 states)

- Hoover: 15, 758,901 (6 states)

- Electoral vote: 472-59

- Senate: 60D-35R

- House: 310D-117R

In what ways did Hoover’s economic and social policies contribute to the Great Depression?

Hoover’s economic policies that contributed to the great depression include the conferences held with heads of industry and receiving a pledge to keep factories open and wages from being cut, that failed. His increase in public works that were government financed and refusal of increasing government spending or taxes. Socially, his economic policies placed blame on the Republican party for the depression.