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The Nation’s Sick Economy

The Nation’s Sick Economy. Chapter 22 Section 1. I Economic Trouble on the Horizon A. 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

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The Nation’s Sick Economy

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  1. The Nation’s Sick Economy Chapter 22 Section 1

  2. 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

  3. 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 moreprices fall more • Could not pay loansrural banks forecloselose 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

  4. 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

  5. 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 creditamericans piling on consumer debtconsumers cut back on spending

  6. 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

  7. II the Stock Market Comes Tumbling Down • Economists were warning of series weaknesses in the economy while most Americans remained unaware

  8. A. Dreams of Riches in the Stock Market • Prices on stock market rise steadilyAmer. 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

  9. 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

  10. B. Black Tuesday • Stocks peak and begin to declineinvestors 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

  11. 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

  12. III Financial Collapse • Amer. Began to withdraw their $$ from banks banks close because they cannot cover amount of withdrawals • Fed. Gov’t did not insure ppls bank accountsppl lost their $$ when banks closed • Other businesses begin to closeunemployment rises

  13. 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

  14. 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 goldgold drops in value

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