CHAPTER 14 SECTION 1
THE NATIONS SICK
ECONOMY
MAIN IDEA:
As the prosperity of the
1920s ended, severe
economic problems
gripped the nation.
ECONOMIC TROUBLES ON THE
HORIZON
 Superficial prosperity
 Basic industries barley made profit
 Coal mining hit hard b/c of new
forms of energy (hydroelectric
power, fuel oil, natural gas)
 Automobile industry weakened
 The number of houses being built
fell
Farmers Need A Lift
 Agriculture
suffered the most
 WWI prompted farmers to
take out loans for land and
equipment
 Demand fell after war
 Crop prices decline by 40% or
more
 1919-1921 annual farm
income declined from $10
billion to $4 billion
FARMERS
 McNary-Haugen
bill-Price
Supports for wheat, corn,
cotton and tobacco
 Price Support-government
buys a surplus of goods at
a fixed price and sells
then on the world market
Consumers Have Less Money
To Spend

Americans buy less because:
– Rising prices
– stagnant wages
– Unbalanced distribution of income
– Overbuying on credit
LEADS TO…GAP BETWEEN
RICH AND POOR
– Look at page 466 in your texbook
LIVING ON CREDIT
 CREDIT-an
arrangement in
which consumes agreed to buy
now and pay later for
purchases
 Credit easily available
 Businesses encouraged
Americans to pile up large
consumer debt
Uneven Distribution of Wealth
Rich got richer…poor got poorer
 In come of wealthiest 1 percent of
population rose by 75%
 9% increase for Americans as a
whole
 70% of the nation’s families earned
less than 2,500 per year
 Average person bought one new
clothes outfit a year
 1 in 10 city homes had an electric
refrigerator

Hoover Takes the Nation
 1928 Election Republican
Herbert Hoover vs.
Democrat Alfred E. Smith
 Hoover won with an
overwhelming victory
 Message was clear:
Americans were happy with
Republican leadership
Dreams of Riches in the Stock
Market
 Stock market the most visible sign
of a prosperous American
Economy
 Dow Jones Industrial- measure
based on the stock prices of 30
representative large firms trading
in the NY Stock Exchange
 Barometer of stock market’s
health
Stock Market
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Dow reached a high of 381 points (300
points higher than 5 years earlier)
“Bull Market”-a period of rising stock
prices
1929 4 million Americans-3% of the
nation’s population owned stock
Speculation- buying stocks and bonds
on the chance of quick profit
Buying on Credit- paying a small
percentage of a stock’s price as a down
payment and borrowing the rest
THE STOCK MARKET CRASHES
Black Tuesday-October 29-the bottom
fell out of the market
 Shareholders frantically tried to sell
before prices plunged lower
 People who bought stocks on credit
were stuck with huge debts
 Others lost their savings
 Investors lost about $30 billion by
mid-November=how much American
spent in WWI

FINANCIAL COLAPSE
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Great Depression-1929-1940 economy
plummeted and unemployment
skyrocketed
Banks failed and people could not get
their money because the bank had
invested in the stock market
1929-600 banks closed
1932-11,000 of the nation’s 25,000
banks failed
Unemployment leaped from 3% to 25%
1 out of every 4 workers was out of a job
World Wide Shock Waves
Europe suffered from high war debts
 Great Depression compounded the
problems b/c it limited America’s
ability to import European goods
 HAWLEY SMOOT-TARIFF: 1930;
Established the highest protective
tariff in the U.S.
 Tariff made unemployment worse
 Countries retaliated by placing their
own tariffs

Causes of the Great Depression
1. Tariffs and war debts policies
cut down foreign markets
2. A crisis in the farm sector
3. Availability of easy credit
4. Unequal distribution of
wealth & income
Factors led to a falling demand
for consumer goods