Causes of the Great Depression

Warm-up

•Why do you think the economy is a in a recession (slow down in the economy, loss of jobs) right now?

What was life like in the 1920s?

• Lots of spending that people couldn’t afford.

• Rise of credit cards

• New technologies

• Consumerism

What is the Stock Market?

• The Stock Market is where you buy and sell stocks (which are parts of a company).

• An individual stock is a share.• You buy the share at a certain price and then

hope that the price goes up so that you can sell it for a profit.

• Stocks go up because a company is thought to be Profitable

Stock Market Crash of 1929

• In the days leading up to "Black Thursday”, the market was severely unstable.

• There were periods of high selling split up by rising prices and recovery

• On Black Thursday the Stock Market dropped 13%

Causes of the Great Depression• Unequal distribution of income- some people

have a lot of money while others have none• Buying on credit-using credit cards and then

not being able to pay it back• Buying stocks on margin-borrowing money to

buy stocks and hoping they rise• Inflated real estate prices-houses are selling for

more than they are worth• Overproduction in industry and agriculture- we

made and grew more than we could sell

Crowd on Wall Street Right after the Crash

Floor of the Stock Exchange

People after the Crash

How Banks Work

• Banks take in money when you or other customers make deposits into your savings account

• Banks then use the money you’ve deposited (put in) into a savings account in order to give loans to other people

• Loans are re-paid, and you can still get your money out of savings

Bank Reserves

• Definition: When banks take in deposits that they don’t then loan out. This means your money stays in the bank.

U.S. Reserve System

• A Fractional Reserve banking system: this means that banks take in money and lend it out. There isn’t even enough money –in cash—in the bank for everyone to take all their money out—the bank’s already lent it out to other people in the form of loans

Loans

• Loans are when you borrow money from the bank. The banks lends you the money, which they got from people who deposited their savings.

• People usually spend loan money right away, on things like homes, cars, or college payments.

Withdrawals

• Because only a small fraction of the bank’s customers’ deposits are kept on reserve (in the actual bank) not everyone can get their money out in cash in one day.

• This usually isn’t a problem, but WAS during the Great Depression

Bank Failure

• This occurred during the Great Depression, when banks could not meet the demands of people who wanted all their money back in cash

• Remember, banks had given out that money in the form of LOANS, which take time to pay back

Bank Run

• A situation where all the depositors (bank customers) go to the bank in order to get their money back at the same time.

• The bank does not have enough cash due to having lent it out in loans to give everyone their money

Bank Runs

Bank Run

Bank Panic

• Bank runs can lead to bank panic in which people no longer trust the banks or lose confidence in them

• When this happens, banks are harmed because people will no longer give them their money in savings

• As people remove their money from banks, the money supply (amount of money being used) shrinks

Exit Slip1. What were the causes of the Great Depression?

2. What is a bank failure?

3. What is a bank run?

4. What is a bank panic?

5. How did bank panics contribute to the collapse of the nation’s banking system?