15-1+USH

Abby Regan 4/24/12 USHCP Mr. Masterson

Key Terms: Bull Market: Upward trend in stock prices. Bear Market: Downward trend in stock prices. Margin Buying: The practice of purchasing stocks with borrowed money. Black Thursday: October 24, 1929, the day investors caused a panic on Wall Street by selling their stocks. Black Tuesday: October 29. 1929, the day the stock market crashed. Gross National Product: Total value of all goods and services produced by a country in a given year. Great Depression: Serious global economic decline that began with the crash of the US stock market in 1929. Smoot-Hawley Tariff: High tariff law that contributed to a global economic downturn in the 1930, protected America from inexpensive imports. Business Cycle: Regular ups and downs of business in a free-enterprise economy.

Key People: Herbert Hoover: 31st president of the US, and was president when the Great Depression started.

Summary:

Economic Troubles on the Horizon
 * Although most believed that the economy of the 20s would continue to rise, a few saw problems in the US economy and tried to warn others.

Credit
 * Because many people were faithful that prosperity would continue, they continued to buy on credit.
 * The federal government kept interest rates low in order to encourage people to keep buying on credit.
 * Some economists were afraid that industries reliance on customers who bought goods on credit would be "crippled" and so would the consumers.

Playing the Market
 * Investors saw no end to the rising trend of stock prices, and invested millions of dollars into the stock market.
 * Many were engaging in stock speculating by buying and selling to make a quick profit, but it inflated the stock market so that many stocks were selling for more than they were worth.
 * In addition, people were buying stocks on credit, and if (actually, more like when) the prices were to fall, then investors would be in severe debt.
 * Although most people were confident in the stocks, some said a crash was coming, and they were right.

The Stock Market Crashes
 * On Black Thursday, many investors lost confidence in the stock market and began to sell their shares, which caused prices to drop severely.
 * This was just the beginning, because on Black Tuesday, prices dropped to a new low when 16 million shares were dropped.
 * The brokers demanded that costumers who bought stocks with margin buying pay back their loans.

The Depression Begins
 * In the first months of the Depression, government and business leaders convinced the people that the setback was minor, but it quickly became clear that it wasn't temporary.

Banking Crisis
 * Because investors couldn't pay back their loans, banks had little or no income, and many were forced to closed.
 * Many tried to withdraw their life savings for fear of more bank failures, but this just made things worse.

Business Failures
 * Many businesses who had lost money in the stock market crash faced other hardships, as costumers were unable to buy their products and pay on credit, so they were forced to "trim inventories" and lay back employees.
 * Businesses began to fail at a fast rate as they became bankrupt, and the gross national product severely decreased.
 * The unemployment rate increased rapidly as more and more businesses failed (it went from 3.2% in 1926 to 23.6% in 1929).

What Caused The Great Depression?
 * The stock market crash was not the only thing that caused the Great Depression.

Global Depression
 * Economic troubles in Europe caused by WWI debts was one of many factors the brought down the US economy.
 * World trade severely decreased in the late 1920s and early 1930s, because foreign consumers couldn't purchase American products, which caused American industries to be stuck with being overstocked.
 * Another contributing factor was that the US government placed high tariffs on imported goods, such as the Smoot-Hawley Tariff.

The Income Gap and Consumer Debt
 * There was an unequal distribution of income, or an income gap, in which the wealthiest 1% of Americans had their disposable income increase by 63%, while the income of the poorest 93% of Americans decreased by 4%.
 * Some Americans tried to make up for the gap by buying goods on credit, but when the US government decided to raise interest rates, most consumers couldn't pay back their debt.

The Business Cycle
 * When industries increase production and hire more workers during prosperous times it causes overproduction, and then they have to cut back on production and lay off workers, which causes underconsumption, because unemployed workers can't buy products.