Great Depression

Question 1

How did the lifestyle of the 1920’s affect the stock market crash and subsequent GD?

Answer 1

people were living lives that they couldn’t afford. people were borrowing more money than there was to borrow, so the stock market crashed.

Question 2

What is the difference between a bull and bear market?

Answer 2

a bull market is up. money is being made (consumers)

a bear market is down. money is NOT being made

Question 3

Describe the poverty rate and the income gap during the GD and compare it to today.

Answer 3

the poverty rate was higher than it is today

Question 4

How do banks work?

Answer 4

they lend the same money out that people deposit in order to make a profit (in the form of interest) and generate economic activity (so people can start businesses)

Question 5

What are cash reserves and why are they important?

Answer 5

the amount of money (or percentage) that banks have to keep on hand in their vault so they can meet the needs of their customers who need their money

Question 6

How does a mortgage work (use principal and interest rate to explain)?

Answer 6

the loan the bank gives you when you buy a house

Question 7

Define foreclosure.

Answer 7

when you can’t pay your mortgage and the bank comes and takes your house away from you(since you can’t pay the loan back).

Question 8

What does speculation mean, in reference to the stock market?

Answer 8

you are buying stock only to make a profit and not because you think the company is a strong company. you are only buying the stock to turn around and sell it to make a profit

Question 9

What does it mean to buy stock on margin?

Answer 9

to buy stock on credit

Question 10

What caused the GD?

Answer 10

Banks loaning more money than they had to loan.

Question 11

Describe the difficulties faced by farmers, migrant workers, bankers, companies

Answer 11

farmers faced decreasing prices for their goods as a result of oversupply and then couldn’t pay their mortgage, so went into foreclosure and often laid off employees. migrant workers couldn’t find jobs so they would move from place to place to do odd jobs and often were living in their cars or shacks. bankers saw many of their loans not being paid and therefore could not issue more loans and often went out of business. companies had to lay off workers, slow production and often went out of business

Question 12

What was Hoover’s reaction to the GD?

Answer 12

He did not react, which led to him not being re elected

Question 13

What economic philosophy and political party did Hoover subscribe to?

Answer 13

republican- believed the government should not be very involved in the economy.

Question 14

What is Rugged Individualism?

Answer 14

Hoover/Republican idea/advice for Americans to just keep working really hard because they didn’t believe the government should have to help people out. they should do it on their own

Question 15

What was the unemployment rate during the GD?

Answer 15

25%

Question 16

Describe the spiral of doom.

Answer 16

Overproduction leads to lower prices, layoffs, foreclosure, decrease in consumer spending, increase in borrowing, increase in tariffs, increase in interest rate, continued bank closures, more layoffs, etc. review the chart we did in class

Question 17

How does consumer spending impact the economy?

Answer 17

66% of the economy runs on consumer spending

Question 18

How does inflation and deflation impact prices of goods?

Answer 18

inflation increases prices of goods and deflation leads to a decrease

Question 19

How was the global economy affected by the GD?

Answer 19

worldwide depression; global trade fell; tariffs went up

Question 20

What is a tariff and how did tariffs contribute to the GD?

Answer 20

tax on import; can’t sell goods abroad; other countries retaliate

Question 21

Why is free trade important?

Answer 21

so countries don’t face an oversupply and lower prices

Question 22

What is the Federal Reserve and what does it do?

Answer 22

Government agency created in 1913 under Woodrow Wilson that regulates banking and money supply. It makes loans to private banks, prints currency, and decide when to raise or lower interest rates.

Question 23

How does the psychology of Americans create a panic in the financial system?

Answer 23

because the system is inherently unstable (not enough money to go around), when Americans panic, they begin to pull their money out of the system, which leads to bank runs or stock market decline. sometimes these panics are started by nothing more than a rumor that makes people panic.

Question 24

How long did the GD last?

Answer 24

1929- end of WWII

Question 25

Why did some Americans move to the Soviet Union during this time?

Answer 25

they thought they would have better opportunities and the USSR had a very low unemployment rate

Question 26

Who did Americans blame for the GD?

Answer 26

themsleves

Question 27

Why did some Americans think capitalism had failed?

Answer 27

it looked as though the system was going to collapse

Question 28

What/who caused the Dust Bowl and what impact did it have on the nation and its people?

Answer 28

Government policies that encouraged people to settle and farm land that should never have been farmed in the first place led to black blizzards and dust storms that often turned the land to desert.

Question 29

Why was FDR’s personality a good fit for the nation when he took office?

Answer 29

reassuring and optimistic, he took action immediately and got the government involved

Question 30

What economic philosophy and political party did FDR subscribe to?

Answer 30

Democrat -increasing government intervention in the economy

Question 31

What is a command economy and what are its limitations?

(not good)

Answer 31

when the government controls the entire economy and there are no private businesses; it is inefficient and often corrupt and it lacks innovation and incentive

Question 32

What is laissez faire capitalism and what are its limitations?

Answer 32

when the government doesn’t get involved at all and individuals are allowed to operate in a free market and do basically whatever they want; leads to poor working conditions, income inequality, poor products for consumers, monopoly, lack of competition

Question 33

Why did FDR refer to his policies as “The New Deal?”

Answer 33

The “New Deal” was the government was going to force companies to abide by new government regulations and those regulations were going to be enforced. the government was also going to insert safety nets for citizens

Question 34

How did FDR help banks?

Answer 34

banking holiday to stem the panic; sent currency from the Fed to make sure banks could meet the needs of those who wanted cash

Question 35

What were Fireside chats and what impact did they have?

Answer 35

FDR speaking directly to the American people by radio to calm them down and explain what was happening and his plan

Question 36

Describe unemployment insurance, the FDIC, social security, and farm subsidies.

Answer 36

when you lose your job, you can apply to get a monthly amount from the government for 18 months to try and help you pay your bills; FDIC insures bank deposits; social security is amount of money workers have to give to the government from their paycheck so they can get some of it back after they retire; farm subsidies are when the government pays a farmer to produce a certain good or not to produce something (so the price goes back up)

Question 37

What is the SEC?

Answer 37

Securities and Exchange Commission -enforcement agency of the US gov’t to punish companies for breaking the rules

Question 38

Who was Dorothea Lange, who employed her, and what impact did she have on America?

Answer 38

photographer during GD, government employed her through the WPA and she documented what it was like

Question 39

What other safety nets were put in place by FDR?

Answer 39

Fair Labor Standards Act, and all other programs that were permanent and we still have

Question 40

What does it mean to short a stock

Answer 40

buy an option that lets you make money if the stock price falls

Question 41

What parallels are there between the GD and the 2008 recession?

Answer 41

too much borrowing, income inequality, lack of regulations or enforcement

Question 42

What is deregulation and why did it have an impact on the 2008 recession?

Answer 42

when the government relaxes the rules and takes away some of the regulations; companies then take advantage and participate in riskier behavior that could destabilize the economy

Question 43

What are subprime loans?

Answer 43

crappy loans that should not be given to people because they most likely can’t repay them

Question 44

What is the shadow banking system?

Answer 44

when people put their money in hedge funds and derivatives and can avoid regulation

Question 45

What is a credit crunch?

Answer 45

when the economy starts to tumble and many people can’t pay back their loans, banks don’t feel comfortable loaning people any money because even though they might be a good candidate for a loan, they don’t have enough cash reserves or confidence to lend $ out

Question 46

What is the difference between a recession and a depression?

Answer 46

recession is when economic activity falls for 2 consecutive quarters and a depression is when it continues to fall

Question 47

What was the bailout, or TARP program, and was it successful?

Answer 47

the bailout (officially called TARP) was when the government gave taxpayer money to big banks and other companies to prevent them from going bankrupt; helpful at saving the system from collapse but unfair for regular Americans who didn’t make those risky decisions in the first place