Causes of the Great Depression

1. What industrial weakness signaled a declining economy in the 1920s?    

The superficial prosperity of the late 1920s signaled a declining economy in the 1920s. Railroads, textiles, and steel which were key basic industries, hardly made a profit. New forms of transportation such as trucks, buses, and private automobiles made little use for railroads. Mining and lumbering which were in high demand during war time, were no longer in high demand. The number of new dwellings being built declined. When the housing starts fall, many industry related jobs fall as well.  

2. What did the experience of farmers and consumers at this time suggest about the health of the economy?    

     The experience of farmers and consumers at this time suggests that the health of the economy was quickly declining. Between 1919 and 1921 annual farm income declined from about 10 billion to about 4 billion. Many farmers went into dept and had difficulty paying off loans. Many farms were taken when banks foreclosed as payment for loans. By the late 1920s, many consumers were buying less due to the rising prices and unbalanced distribution of income. The gap between the rich and the poor widened dramatically. The rich got richer while the poor got poorer. 

3. How did speculation and margin buying cause stock prices to rise?    


     Speculation and margin buying caused stock prices to rise because it created unrestrained buying and selling and easy money. The government didn't stop or regulate it so the stock prices started and continued to rise. What people were paying for the stocks didn't really reflect the companies true worth. People ignored the risk of losing all their profit when they were speculating. If the stock prices dropped, they wouldn't be able to pay off their loans from margin buying.   


4. What happened to ordinary workers during the Great Depression?    

     The Great Depression left millions of people without jobs or savings accounts. Millions of people lost their savings account when the banks collapsed. Unemployment skyrocketed as millions lost their jobs. Unemployment leaped from about 3 percent in 1929 to about 25 percent in 1933. One out of every 4 workers were without a job. Those who kept their jobs reduced their work hours and were forced to accept pay cuts. 

5. How did the Great Depression affect the world economy?    

     The United States was not the only country hurt by the Great Depression. European countries faced high war debt trying to recover from Word War 1. Germany had to pay war reparations to the Allies. The Great Depression limited America's ability to import goods resulting in difficulty to sell American farm products and manufactured goods abroad. Hawley-Smoot Tariff Act which was designed to protect American farmers and manufactures from foreign competition backfired reducing the flow of goods into the United States. Many countries retaliated by raising their own tariffs. Within a few years, world trade had fallen more than 40 percent. 

Define: 

a. Price-Supports:    Government assistance in maintaining the levels of market prices regardless of supply or demand. Congress issue price supports on key products such as wheat, corn, tobacco, and cotton.

b. Credit:   an arrangement in which consumers agreed to buy now and pay later often in the form of an installment plan. Usually paid with monthly payments. 
c. Dow Jones Industrial Average:    was and is now the most widely used barometer of the stock market's health. The Dow is a measure based on the stock prices of 30 representative large firms trading on the New York Stock Exchange.

d. Speculation:   when you bought a stock or stocks and bonds on the chance of a quick profit, while ignoring the risk.

e. Buying on Margin:    paying a small percentage of a stock’s price as a down payment and borrowing the rest.


f. Black Tuesday:    On October 29, what became known as Black Tuesday was when the bottom fell out of the market and the nation's confidence. 


g. Hawley-Smoot Tariff: Congress passed the Hawley-Smoot Tariff Act in 1930. The tariff was designed to protect American farmers and manufacturers from foreign competition.