Causes and Impacts of the Great Depression

US History

Standards and Objectives

• QC-D1E – Identify and explain the economic factors that contributed to the stock market crash of 1929 and the Great Depression. • QC – D1F – Explain the economic, environmental, and social impact of

the Great Depression

I. The Long Bull Market

A. Stock Market1. A system for buying and selling shares of a company.2. Bull Market – a long period of rising stock prices.

A. Prolonged bull market convinced many Americans to invest heavily in stock in the 1920’s.

B. As the market continued to soar, many investors began to buy stocks on margin (loan)C. As long as prices continued to rise, this was safe

I. The Long Bull Market

A. The Stock Market3. Speculation

A. By the late 1920’s many Americans participated in speculation. 1. Risky investing with the hopes of making a quick $2. Made stocks seem more valuable then they were.

II. The Great Crash

A. Crash!1. A steady decline in investors led the prices of stocks to drop drastically.2. October 29, 1929

A. Black Tuesday – Prices took the steepest dive in American history1. Some $30 billion was lost that year alone

II. The Great Crash

B. Banks in Tailspin1. Market crash severely weakened banks.

A. Money had been lent to stock speculatorsB. Invested money in the stock marketC. Bank runs and losses in the stock market led many banks to close

III. The Roots of Depression

A. Uneven Distribution of Income1. Overproduction was a key cause of the Great Depression

A. Most Americans didn’t make enough money to buy up all the goods that were being produced. This leads to surplus, which leads to a reduction of prices, which leads to unemployment.

2. Consumer CreditA. A rise in debt leads to consumers reducing their purchases and a low consumption of

goods.

III. The Roots of Depression

B. Loss of Export Sales1. Banks stopped loaning money to foreign companies, which led to fewer

products being bought from American manufacturers.2. Hawley Smoot Tariff – the highest tariff in American history

A. Damaged American sales abroad.B. Harmed American companies and farmers

III. The Roots of Depression

B. Mistakes by the Federal Reserve1. Federal Reserve was created to regulate money supply in the United

States.2. Throughout the 1920’s the FED kept interest rates extremely low, which

A. Encouraged banks to make risky loansB. Led business leaders to think the economy was expanding, therefore they continued

to borrow more money and expand production.

IV. Impacts

A. Unemployment and Poverty1. By 1933, more than 12 million workers were unemployed. 25% at the

highest2. Average family income dropped from $2300 to $16003. People often went hugry and many were evicted from their homes.

A. Breadlines and soup kitchensB. Hoovervilles – shantytowns named after president Hoover.

IV. Impacts

B. Environmental1. Dust Bowl – terrible drought stuck the Great Plains in 1932. From the

Dakotas to Texas, wheat fileds becames a vast dust bowl2. Migrants began to leave the Great Plains in search of a better life in

California. They became known as Okies.

Images of the Great Depression