The Stock Market Crash

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The Stock Market Crash

• Chapter 22 Lesson 1

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Key terms of the section

• Dow Jones Industrial Average- an average of stock
  prices of major industries
• Black Tuesday-October 29, 1929, the day on which
  the Great Crash of the stock market began
• Great Crash- The collapse of the stock market in
  1929
• Business cycle- is a span in which the economy
  grows the contracts
• Great Depression- the most severe economic
  downturn in the nations history, which lasted
  from 1929- 1941

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Setting the Scene

• On October 29, 1929, fear gripped the floors of
  the New York Stock Exchange as investors watched
  millions of dollars slip away.

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The Market Crashes

• In 1928, the Dow Jones Industrial Average was
  successfully climbing to 191.
• Until September 3, the Dow Jones was still
  successfully climbing. (381)

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Black Thursday

• At the peak of September, stock prices fell
  slowly.
• The stock market closed on Wednesday, October 23
  with a 21 point drop in one hour.
• On Thursday, nervous investors of General
  Electric Stock sold shares at a 117 dollar loss.

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Black Tuesday

• To stop the panic, a group of bankers pooled
  their money to buy stock. This only stabilized
  the market for a few days.
• On October 29, Black Tuesday, a record average
  16.4 million shares were sold.
• This collapse of the stock market is know as the
  Great Crash.

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The Ripple Effect of the Crash

• Initially the effects of the Crash were felt only
  by those who were heavily invested in the stock
  market. Within a short time however everyone was
  effected.
• The following list explains ho the effects of the
  crash spread to all Americans1) Risky loans hurt
  banks, 2) consumer borrowing, 3) bank runs, 4)
  bank failures, 5) saving wiped out, 6) cuts in
  production, 7) rise in unemployment and 8)
  further cuts in production

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Economic Contracts

• A contraction is an economic decline marked by a
  falling output in goods and services.
• A particularly long and severe contraction is
  known as a depression.
• The contraction that began with the Great Crash
  triggered the most severe economic downturn in
  the nations historyThe Great Depression.

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Great Depression
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Underlying Causes of the Depression

• 1) An Unstable Economy- The seemingly prosperous
  economy of the 1920s lacked a firm bases.
  National wealth was unevenly distributed with
  most money in the hands of a few families who
  tended to save or invest rather than buy goods.

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• 2) Over speculation- Speculators bought stocks
  with borrowed money and then pledged those stocks
  as collateral to buy more stocks
• 3) Government policies Mistakes in monetary
  policy were also to blame. The Federal Reserve
  system, which regulates the amount of money in
  circulation , cut interest rates to spur economic
  growth. Then in 1929, the Federal Reserve
  limited the money supply to discourage lending.