What were the causes of the Great
Depression?
Definitions

 Bank Run – People withdraw all money from bank
 Margin – Paying for a small percentage of a stock
now and paying the rest off later
 Margin Call – When a broker asks for a stock
purchased on margin to be paid off
Quick Review

With your partner, discuss the following questions
about definitions.
1. What is a bank run?
2. What does it mean to buy on margin?
3. What is a margin call?
Causes

1)
2)
3)
4)
Banks Begin to Close
Uneven Distribution of Income
Loss of Export Sales
Mistakes by the Federal Reserve

Banks begin to close

 No Federal insurance on bank deposits
 Stock Market Crash severely weakened banks
 Banks had invested deposits in the stock market
 Banks loaned lots of money to stock speculators
 Very little credit available so consumers and
businesses couldn’t borrow money
 People lost faith in the banks
 People began making runs on banks
Quick Review

With the partner assigned to you, discuss the following
question about banks closing.
1. What are 3 reasons why banks began to close?

Uneven Distribution of
Income

 Overproduction led to too many goods and not
enough buyers
 Top 5% of households earned 30% of the nations
income
 Chain reaction put thousands of Americans out of
work
 Prevented America from buying more things
 Forced companies to fire employee’s
 Americans became dependent on installment plans
Quick Review

With your partner, discuss the following questions we
have discussed so far.
1. What is a bank run?
2. What were the four main causes of the Great
Depression?
3. What were the two main reactions of American’s not
buying products?

Loss of Export Sales

 Foreign countries were in recession after WWI
 Nation’s didn’t have money to buy American goods
 Hawley-Smoot Tariff
 Raised tariffs to highest in history
 Led to fewer U.S. products being sold overseas
 World-Wide Economic Struggle
 A poor economy was a trend all around the world

Mistakes by the Federal
Reserve

 Federal Reserve Board kept interest rates very low
 Banks were encouraged to make risky loans
 Made business leaders think economy was
strong
Businesses borrowed money to expand
which led to overproduction even though
sales were falling
Stock Market 1922-1940

The Great Crash

 Fact: On October 29th, 1929, the stock market crashed.
 This day is forever known as BLACK TUESDAY.
Stock Market

Crashes
Soars
 Bull Market – Long
period of rising stocks
 Investors began buying
on margin
 Market was doing very
well, encouraging
people to continue
investing
 Investors got nervous and
put stocks up for sale at a
high rate
 Brokers began making
margin calls
 Market was running out
of new customers
 Market lost an amount of
money equivalent to all
money earned in the U.S.
in 1929
 Didn’t cause the
depression, but prevented
the U.S. from recovering.