economics of history activity netw...
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netw rks
NAME _______________________________________ DATE _______________ CLASS _________
The Great Depression Begins, 1929–1932
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Economics of History Activity
Speculation and the 1929 Stock Market Crash
Before the Great Depression of the 1930s, the 1920s had been a time of economic optimism and growth. Specifically, in the late 1920s the prices of stocks rose dramatically. Usually a stock's price reflects investors’ perception of the company’s value. For example, if a company has strong sales and is expected to have good sales into the future, the company’s stock price may rise because investors have identified value in the company. When investors buy stocks simply because they hope the stock price will continue to increase, they are engaged in speculation. Speculation adds fuel to rising stock prices, but it is risky for investors. When the excitement about the rising stock price ends, prices can drop quickly.
The economic collapse that began in 1929 seemed unimaginable only a year earlier. In the 1928 presidential election, Herbert Hoover declared, “We are nearer to the final triumph over poverty than ever before in the history of any land.”
The optimism that swept Hoover into the White House also pushed stock prices to new highs. In the late 1920s, the stock market experienced a prolonged period of growth, which convinced many people to buy stocks. Some people even borrowed money to buy
Economics Terms to Know
stock a share of ownership in a corporation
speculation buying stocks at great risk, expecting the price to rise
stock market a system for buying and selling stocks in corporations
margin buying stocks with borrowed money
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Stock Prices, 1920–1932
United States History and Geography: Modern Times
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netw rks
NAME _______________________________________ DATE _______________ CLASS _________
The Great Depression Begins, 1929–1932
Copyright ©
The McG
raw-H
ill Com
panies, Inc. Permission is granted to reproduce for classroom
use.Economics of History Activity Cont.
stocks, which is known as buying on margin. Buying stocks on margin is especially risky because if prices decline, investors still owe the money they borrowed, but the stocks are worthless.
As long as stock prices kept rising, investors were happy and borrowed more. Hoping to get rich quick, buyers engaged in speculation—taking big risks and making big bets that the stock market would continue to climb—without regard to a company’s underlying profits or sales.
However, when the stock market crashed on October 29, 1929, many investors were left with stocks worth nothing. The crash led to a panic throughout the economy. The stock market crash of 1929 was one of the causes of the Great Depression.
Applying Economics to History
1. Using the graph as a reference, how could you describe the U.S. economy in the late 1920s?
2. What information should investors use to choose which stocks to buy?
3. Why do you think the stock market crash of 1929 was not predicted?
4. How did economic factors of the 1920s lead to political and social effects in the 1930s?
United States History and Geography: Modern Times
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