Notest for Test 2

Notest for Test 2 - Great Depression-1929 Origin of the...

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Great Depression-1929 Origin of the Great Depression - People often link the Great Depression to WW I. What caused the Great Depression? It was caused by structural defects in the U.S. economy. 1. #1 reason for the Great Depression- production exceeded demand. a. In the 1920s, labor unions were on the defensive. b. There was a point at which purchasing power of average Americans wasn’t large enough to maintain economic growth for the whole nation. 2. #2- Over expansion of Industry- many businesses pursued over production because profits were increasing. But the plan backfired. It widened the gap between production & demand. 3. #3- Tax System reinforced & intensified the basic problem of “production exceeded demand.” 4. #4- Slow down in foreign trade- impede free trade. Products that could’ve been exported were now sitting around in factories. 5. #5- Poorly Regulated Banking & Financial System- they were unregulated. So, many banks did 2 jobs. a. Regular banking duties. b. It also acted as a brokerage houser. Stock Market : became an essential part of the economy. It started to require a lot more money. A lot of tax cuts ended up being invested. People had to start borrowing money to buy stocks. Bull Market -‘20s were a great bull market. It was growing quickly. In 1926 & 1927 : economy started to slow down. Economic indicators shows sign of bad things coming. 1927 showed a decline in consumer spending. People were starting to cut back. Inventories of stores were rising. 1928 there was a speculation. Stock market was still doing well but the overall economy was slowing down. Stock market is going up, productivity is going down. Great Crash of 1929 - it was a symbol of structural defects in the economy. Specifically, production & demand were good indicators of bad things to come.
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29 October- the worst day in stock market history. o On that day & the day before, there was a massive wave of people selling their stocks. People wanted to sell because the wanted to avoid loss & they panicked. They contributed to the problem. Suddenly stock market was no longer in demand. Stock prices continued to decline into the 1930s. Into the Great Depression People had lost confidence. The structural defect now started to manifest them & operate in a ripple effect. Sales declined, so industry cut production, wages, & orders for more materials. o Other industries felt the impact and did the same thing. o As workers started losing jobs, they stopped spending money. Unemployment causes workers to buy less from consumer businesses. o As a result, businesses face declining sales and therefore cut production, wages, & orders for more materials. As this ripple effect occurred, Federal Government failed to take action to stop it. The economy goes into a recession.
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