The Nation’s Sick Economy

Chapter 22 Section 1

I Economic Trouble on the HorizonA. Industries in Trouble

• Prosperity in 20s had weaknesses GD• Basic industries not making profits due to new comp.

(trucks/private auto.)• Construction of new home peaked and fell steadily• Housing is econ indic. Because it has spinoff effects on other

indust. (lumber/appliances/labor/construction supply & tools)

• As housing declined so did other businesses that depended on construction

B. Farmers Need a Lift• WWI increased demand for food but w.

the end of the war demand sunk• Farmers increase prod. In hopes of

selling moreprices fall more• Could not pay loansrural banks

forecloselose home & farms• Fed gov’t passes McNary-Haugen Bill

that called for fed. Price supports• Price support=- support of certain price

levels at or above market values by the fed, gov’t

• Bill vetoed by Coolidge

C. Consumers Have Less Money to Spend•As incomes fell ppl had less $$ to spend on goods &

services•Production increases increase divide between rich

and poor

D. Living on Credit•Many Americans living beyond heir

means during 1920s because they bought on credit• Credit= arrangement in which

consumers agreed to buy now and pay later on purchases via monthly payments that include interest charges

• Easy availability of creditamericans piling on consumer debtconsumers cut back on spending

E. Uneven Distribution of Income• Consumers also spend less

because their incomes were not rising• Fams could not cont. to afford

household products that were being produced

• As this was happening wealthiest 1% rose by took in 1/3 of nations income• Unequal dist. Of wealth meant

most Amer. cannot part. In econ advancement of 1920s

II the Stock Market Comes Tumbling Down• Economists were warning of series weaknesses in the

economy while most Americans remained unaware

A. Dreams of Riches in the Stock Market•Prices on stock market rise steadilyAmer. rush to buy stock in “bull market”•Bull Market= rising stock market prices

•Many stock owners were avg Amer. hoping to strike it rich• Investors engage in speculation• Speculation= engagement in risky business

transactions on the chances of big profits

• Investors also begin to buy stocks on margin• Buying on margin= paying small % of

stock’s price as down payment and borrowing the rest (often borrowed 75% of stocks purchase price)• This worked as long as stocks rose

because they could make large profit and pay back the loan• However, if the stock declines, there

was no way to pay off the loan

B. Black Tuesday• Stocks peak and begin to

declineinvestors sold stocks and pulled out of the stock market• Oct 24th large plunge in market as

panicked investors unload their shares

•Black Tuesday= the bottom falls out as ppl and corp. rush to sell their shares and market plunges• Ppl who bought on credit/margin

acquired large debt• Ppl who invested their savings lost it

all

C. Causes of the Great Depression• Great Depression= period from 1929-1941 in which econ was

in severe decline and million of ppl were out of work• Stock market did not cause the depression but it helped speed up

its collapse• Factors of the Great Depression• Old industrial base- outdates infrastructure• Crisis in farming sector- surplus of goods after WWI• Easy avail. Of credit- ppl went into buying goods on installment

plans• Unequal distribution of income- little $ in hands of working ppl

who were maj. Of consumers

III Financial Collapse•Amer. Began to withdraw their $$

from banks banks close because they cannot cover amount of withdrawals• Fed. Gov’t did not insure ppls

bank accountsppl lost their $$ when banks closed•Other businesses begin to

closeunemployment rises

A. Worldwide Shock Waves• Europe also suffered during 20s due to high debt of

WWI• Germ had to pay reparations

•GD made worse because US couldn’t buy European goods•Congress tries to help by passing the Hawley-Smoot

Tariff= highest protective tariff in US history• Supposed to help American business but it did the

opposite as other countries passed their own protec. Tariffs

• Europeans bought less Amer. goods because of debt and tariffs•Hoover proposes moratorium on

allied war debts and Germ. Rep.•Moratorium= postponement of

payments•Britain and other Europeans leave

the gold standard• Paper $ no longer exchanged for

goldgold drops in value