The Interwar Years
Section 2
The Great Depression
Preview
• Main Idea / Reading Focus
• The U.S. Economy in the 1920s
• Quick Facts: Causes of the 1929 Stock Market Crash
• The Depression Spreads
• The Worldwide Depression
• Quick Facts: Social Programs in Selected Countries
The Interwar Years
Section 2
The Great Depression
Main Idea
In the late 1920s, an economic depression started in the United
States and quickly spread around the globe, causing great
hardship and creating ideal conditions for political unrest.
Reading Focus
• What happened to the U.S. economy during the 1920s?
• How did the Depression spread throughout the United States?
• How did the Depression affect the world?
The Interwar Years
Section 2
The U.S. Economy in the 1920s
At War’s End
• U.S. world’s leading economic
power at end of World War I
Economic Growth
• Position stronger during 1920s
• American farms, factories
supplied world with food,
supplies to fight World War I
• End of decade, economy
crashed
• Economy slowed briefly at war’s
end
Steady Growth
1920s Stock Market
• Economy booming by 1921
• Overall value rose 400 percent
• Most growth in industry
• Americans did not want to miss
out on prosperity
• Auto manufacturing, consumer
goods, radios, vacuum
cleaners, washing machines
• Increased investment drove
stock prices higher
The Interwar Years
Section 2
Hidden Problems
• Stock market booming, but hidden problems affected economy
• New wealth not distributed evenly
• Richest 1 percent of population earned 19 percent of nation’s income
• Easy credit allowed increase in consumer goods spending
Credit
• Credit, arrangement where purchaser borrows money from lender
and agrees to pay it back over time
• At decade’s end many consumers reached limit of credit
• Could no longer afford to buy products that had kept U.S. economy
expanding
The Interwar Years
Section 2
The Stock Market Crash
Fall of 1929
• Consumer spending slowed, sales suffered
• Many feared drop in stock prices
• Nervous investors began to sell off stocks
October 29
• Black Tuesday, 16 million shares of stock sold in one single day
• Few people wanted to buy stock, stock prices collapsed
• Investors who had borrowed to buy stocks forced to sell at loss
Market Crash
• Stock market crash ruined many investors
• Banks that had lent money to investors were also in deep financial trouble
• Devastating blow dealt to American industry
The Interwar Years
Section 2
Section 2
The Interwar Years
Sequence
What happened to the U.S. economy during
the 1920s?
Answer(s): The economy boomed; Americans
bought goods and stock on credit; when consumer
spending slowed, a stock sell-off began, resulting
in the 1929 stock market crash.
Section 2
The Interwar Years
The Depression Spreads
Great Depression
Industry Slows
• American economy took severe
downward dive after stock
market crash
• As industry slowed, workers lost
jobs
• Economic downturn became
known as Great Depression
• One out of four unemployed by
1933
• Depression result of complex
factors
• Joblessness, poverty reduced
ability to buy food, goods, hurt
industry even further
• One factor, slowdown in
industry; began before crash,
worsened quickly after
• Banks suffered when
businesses, investors failed to
pay off loans; many failed
The Interwar Years
Section 2
The Depression Spreads
Government Response
• President Herbert Hoover favored minimal government response to crisis
• Some thought depression was normal adjustment to overheated economy
• Hoover eventually took some actions, many felt too little too late
Roosevelt Elected
• Franklin Delano Roosevelt elected president, 1932
• Increased federal government’s role in lives of Americans
• Pushed forward New Deal, program to fight Great Depression
New Deal
• Provided government spending to help start economic recovery
• Public works programs to provide jobs, government money for welfare, relief
• New regulations to reform, protect stock market, banking system
The Interwar Years
Section 2
New Economic Theories
Increased government spending supported by theories of
British economist John Maynard Keynes
• Believed governments could limit, prevent economic
downturns
• Governments should spend money
– Spending would help increase economic output
– Factories would hire workers to meet new demand
– Eventually workers would begin spending, depression would
end
• Government spending did help U.S. economy, but
depression lingered through 1930s
The Interwar Years
Section 2
Identify Cause and Effect
Explain the factors that led to the Great
Depression.
Answer(s): unequal distribution of wealth; buying
stock and products on credit; spending slowed;
stock market crashed; a slowdown in industry
followed
Section 2
The Interwar Years
The Worldwide Depression
In 1929 America was one of the world’s leading importers and lenders
of money, and created much of the world’s industrial output. Events
affecting America’s economy would soon impact other countries.
Before the Crash
• Some countries
having difficulties
before stock market
crash
• European countries
recovering from
World War I
• Allied Powers in
debt to U.S.
World Woes
• High interest rates
in Great Britain
• Decreased
spending, high
unemployment
• Germany’s
reparations led to
inflation, crippled
economy
Series of Crises
• Japan’s economic
depression forced
banks to close
• U.S. Great
Depression latest in
long series of
economic crises
• Effects far worse
Section 2
The Interwar Years
The Worldwide Depression
A Slowdown in Trade
• President Hoover signed Smoot-Hawley Tariff Act, 1930
• Act placed heavy taxes on imported goods
• Attempt to encourage Americans to buy U.S. made goods, products
• American goods would be cheaper than taxed imported goods
Act Backfired
• New tariff led other countries to
increase their tariffs on American
goods
• World trade slowed to a standstill
• Loss of foreign trade crippled many
nations’ economies
Results
• Trade slowed, prices collapsed
• Price of Japanese silk dropped
• Silk major Japanese export, nearly
20 percent of farm income
• Decline of silk industry one
example of collapsing markets
worldwide
The Interwar Years
Section 2
The Worldwide Depression
The postwar era left many countries politically unstable. As the
Depression continued, unrest grew worse.
Political Impact
• Instability in Great Britain and
France led to formation of
several new governments
• Extremist political groups
gained strength
– Germany’s Nazi Party
blamed Jews
– Italian dictator Benito
Mussolini tightened his
control of the nation
Economies Worsen,
New Leaders Emerge
• Widespread misery,
hopelessness worldwide
• Ideal conditions for rise of
leaders who promised to
restore their nations to glory
• World in midst of troubled
times
• Worse crisis lay ahead
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The Interwar Years
Summarize
How did the Depression spread to the rest of
the world?
Answer(s): World trade slowed, ruining some
foreign economies. War recovery and economic
problems in Europe led to political unrest and
changes in government.
The Interwar Years
Section 2