The Stock Market Crash
and the end to “wonderful prosperity”
Chapter 15
Section 1
What Happened?
 1929- the Dow Jones Industrial Average climbed to an all
time high of 381
 Prices for many stocks were far above their real value in terms of
the company’s earnings and assets
 Stock prices began to fall slowly. Wed. Oct. 23rd, prices dropped
21 pts in one hour
 Black Thursday: worried investors began to sell and stock prices
fell
 GE- stock bought at $400 sold at $283/share
 Group of investors pooled money to buy stock. Stabilized prices for
a few days
 Panicked investors raced to sell stocks on Monday
 Black Tuesday: record 16.4 million shares sold
The Great Crash
 Collapse of the stock market is called the Great Crash
 Part of the business cycle: a span in which the economy
grows then contracts
 http://video.about.com/economics/What-Is-the-BusinessCycle-.htm
The Ripple Effect of the Crash
 Investors lose millions in stock market crash
 Falling stock prices causes businesses to lose profits
 Businesses cut investment and production. Some fail.
Workers are laid off. Consumer spending drops
 Businesses and workers cannot repay bank loans. Banks run
out of money and fail. Bank runs occur. Savings accounts are
wiped out.
 Overall U.S. production plummets. U.S. investors stop
investing in Germany. German war payments to Allies stop.
Allies cannot pay debts to U.S.
Underlying Causes of Depression
 Unstable Economy
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Uneven distribution of wealth
Overproduction
Increasing personal debt
Struggling farmers and workers
 Over-speculation
 Speculators bough stocks with borrowed money and then pledged
those stocks as collateral to buy more stocks
 Government Policies
 Federal Reserve system cut interest rates to spur economic growth in
early ‘20s, then worried about overspeculation, limited the money
supply to discourage lending resulting in too little money in
circulation to help the economy recover after the Great Crash
The Causes of the Great Depression
Video Clip
 http://www.glencoe.com/video_library/index_with_mods
.php?PROGRAM=9780078745232&VIDEO=2775&CHAP
TER=11&MODE=2