It’s the Economy, Stupid!

Demand—how many people want to buy something

• If a lot of people want to buy something, will the price go up or down?

• After WWI, many soldiers return from war. What will they want to do?

Supply—how much of something is made or exists

• How many cars are made, how many diamonds exist in the world, how much oil is left

• If the supply is low, the price goes ______

• If the supply is high, the price goes ___________

What industries will benefit from increased car sales?

• • • • • • • • •

All of these industries will have an increased demand.

Stock Market—people buy a little piece of a company. If the company does

well, people make money. If the company does badly, people lose

money.

If I can buy a stock for $100 and next month it is worth $1,000,

what will I want to do?

What if I don’t have $100, what might I do?

Buying Stocks on the Margin

• I borrow money to buy stocks.• No problem, right?• I will have $1,000 next month, so I can pay it

back.• Uh-oh!!!!!!! What if the stock isn’t worth $1,000!

What if the stock is worth $1. What if I bought 50 shares of a stock with $50,0000 that I borrowed?

• This happened to many Americans.

Federal Reserve Bank

• Central bank that controls how much money is available in the United States

• If more money is available, I can borrow money to start a business.

• If less money is available, it will cost too much to borrow money and I might not be able to start a business.

• If the economy is bad and people need jobs, do I want more or less money to be available?

Tariffs

• Tariffs are taxes placed on goods that are imported from another country.

• What are two reasons that the US might want to raise tariffs?– –

• What happens if the US raises tariffs really high?

Depression• A time of a bad economy that lasts for a

long time

Unemployment

• The number of people who don’t have jobs who are looking for work.

Black Thursday

• October 28, 1929, the US stock market crashes.

• The crash leads to the Great Depression.

• All nations are impacted.

Why did the stock market crash?

• Business was great, but too many investments were made with borrowed money.

• It was too easy to get credit. Banks would lend money to people who might not be able to pay it back.

• Business failures led to bankruptcies (running out of money).

• Bank deposits were invested in the market.• When the market crashed, banks ran out of

money.

Consequences of the crash

• People panicked and tried to get their money out of the banks, but there was no money to give the people.

• There were no new investments. Nobody had money.

Causes of the Great Depression

1. Stock market crashed in 1929 and stock prices collapsed

Causes of the Great Depression

2. The Federal Reserve Bank did not prevent the banking system from collapsing. There was a severe shortage of money in circulation.

Causes of the Great Depression

3. The US had high tariffs, so other countries raised their tariffs and the US couldn’t sell things in other countries. This high tariff was called the Hawley-Smoot Act or Tariff of 1930.

Causes of the Great Depression4. Unequal distribution of wealth—when most of

the wealth of a country is owned by only a few people rather than being spread out more equally (a few really, really rich people and lots of poor people)

Why is this a

problem?

Impact of the Great Depression

1. Unemployment (25%) and Homelessness

Impact of the Great Depression

2. Political unrest—labor unions became militant (angry and violent)

Impact of the Great Depression3. Farm foreclosures (bank takes the farm

because farmer can not pay mortgage) and migration (moving)

4. Collapse of Financial Systems: Banks Closed

5. Decline in demand for goods

As if that wasn’t bad enough . . .

President Roosevelt Calmed the Nation

• One in four workers were unemployed. People were scared.

• Roosevelt said, “We have nothing to fear, but fear itself.”

The New Deal

• Franklin Delano Roosevelt’s plan to fix the economy

• The government becomes more involved in solving problems.

New Deal Programs

Relief

• Direct payments to people that needed help immediately.

Works Progress Administration (WPA) paid people to fix streets and build bridges.

Recovery

• Programs to bring the nation out of the depression over time.

The Agriculture Adjustment Act (AAA) paid farmers to NOT plant so much. By planting too much, prices were too low.

Reform

• Fixed banking and investment practices that caused the depression.

Federal Deposit Insurance Corporation (FDIC) insures money in banks so there are no more bank runs.

Social Security

• Money to protect workers and retired people.

Results of the New Deal

• People expect the government to:– deliver services– fix the economy– promote the general welfare