Causes of the Great Depression
What caused changes in the economy
over time? How do depressions affect
societies?
Terms
1.
2.
3.
4.
Collapse – a sudden loss of force, value or effect
Stock market – a system for buying and selling stocks in corporations
Bull market – long period of rising stock prices
Invest – to put money into a company in order to gain a future financial
reward
5. Speculation – buying stocks at great risk with the anticipation that the prices
will rise
6. Margin – buying a stock by paying only a fraction of the stock price and
borrowing the rest
7. Sum – a specified amount of money
8. Margin call – demand by a broker that investors pay back loans made for
stocks purchased on margin
9. Bank run – persistent and heavy demands by a bank’s depositors, creditors or
customers to withdraw money
10.Installment – regular periodic payment made to pay off the cost of an item
when buying it on credit
Charts/Graphs pg. 233
1.What can you infer about the health of the stock
market prior to 1929?
Due to the steady rise of stock prices prior to
1929, it can be inferred that the stock market
appeared to be in good shape.
2.What generalization can you make about the
variation in highs and lows of the stock market
from 1920 to 1932?
Prices generally rose during the 1920’s but fell
rapidly during the 1930’s
Charts/Graphs pg. 235
1. What basic economic principle underlay the cause of the
Great Depression?
Overproduction meant that the supply of goods
outpaced demand for them.
2. What effect did the decline in automobile sales have on
related industries?
Slower sales meant less demand for raw materials for
manufacturing automobiles, which in turn led to job
losses and lower wages.
Critical Thinking - 234
1. What investment practices most destabilized the stock
market?
Stock speculation and buying on margin made the stock
market very unstable. Investors made risky
investments with very little money to back them up,
and the stock market became overvalued.
Progress
Check 233
1. What investment decisions destabilized the economy
during the 1920’s?
People did not adequately consider a stock’s value but
instead made risky investments based on the bull
market. Speculation and buying on margin made the
stock market increasingly unstable.
Progress Check - 234
1. How did the failure of the stock market contribute to a
larger economic decline?
Because people had lost so much money in the stock
market, the economy became increasingly unstable.
Speculators could not pay back loans, and banks
themselves lost so much money in the stock market
that they could not cover depositors’ withdrawals.
Progress Check - 236
1. What were three
existing economic
conditions that
contributed to the
Depression?
Uneven distribution
of income, high
tariffs, and low
interest rates