Immediate Causes• People and businesses borrow money to invest in the stock market; speculation drives stock prices too high and when they collapse, many people lose all of their money, and many banks collapse when loans are not repaid.• As companies lay off workers, demand for goods falls as workers lack the income to purchase goods being produced. This in turn causes even more layoffs and a cyclical effect sets in, driving up unemployment.• In order to protect American companies from competition, Congress raises tariffs. When other countries respond in kind, foreign demand for American goods falls, further hurting American companies.▲A New York paper trumpets the stock crash. To raise cash to pay their stock debts, people began selling anything of value, including this car.Effects of the Depression • Unemployment rises to record levels.• Many people, unable to pay their debts, lose their homes and farms; the homeless create shantytowns, nicknamed Hoovervilles, on the edges of cities.• Hunger marches, protests by farmers, and marches by veter-ans seeking their bonuses indicate growing anger among the population at economic conditions.• The Republican Party rapidly loses political support, enabling the Democrats to take control of Congress.• The federal government, for the first time, begins providing direct relief to citizens in need.• Forms of entertainment, including movies, radio shows, and comic books focus on distracting people from their daily lives.▲Shantytowns appeared in many cities during the Depression as homelessness and unemploy-ment rose.
Chapter 18The Great Depression Begins645ASSESSMENTTEST-TAKING TIPIf you are not sure of the answer, try to narrow the options. First, eliminate any choices that you know are clearly wrong. Then, if necessary, make a guess among the remaining choices.STANDARDIZED TEST PRACTICEGO ONReviewing VocabularyDirections: Choose the word or words that best complete the sentence.1.In the late 1920s, many investors engaged in speculation, or purchasing stockAafter considering a company’s earnings and profits.Band quickly selling the stock for a profit. Cby borrowing money from a stockbroker.Dto invest long-term in the future of the company. 2.The Democratic Party’s first Roman Catholic candidate for president wasAAlfred E. Smith.BFranklin Delano Roosevelt.CHerbert Hoover.DCalvin Coolidge.3.Amost often traveled by hopping a railroad car. AphotographerBjournalistCnovelistDhobo4.President Hoover opposed, or giving money directly to needy families. AforeclosureBreliefCpublic worksDunionizationReviewing Main IdeasDirections: Choose the best answers to the following questions.Section 1 (pp. 628–633)5.One of the major problems with the stock market in the late 1920s was the number of people who bought stocks Aon margin, with borrowed money.Bin companies that they supported.