Unit 7: Topic 9 - The Great Depression Flashcards
What is buying on margin, and how did it affect the stock market in the late 1920s?
When an investor buys on margin, the investor puts up a portion of the price for a stock, and a broker advances the rest of the money. The wide availability of margin credit fueled an environment of stock market speculation, and stock prices skyrocketed throughout 1928 and 1929.
What was the effect of the US transition to an urban, industrialized economy characterized by big business and mass production?
Consumer culture saw an enormous expansion as people started buying on credit. As a result, some companies kept producing goods at World War I levels even though it was long over.
What were the main causes of the Great Depression?
Acronym to remember BOPS:
B - Bank Failures: Banks in the US were unstable due to a lack of regulation and risky loans made during the 1920s. When rumors circulated that a particular bank was in danger of failing, customers would rush to withdraw their savings. This confirmed the rumors and ultimately led to the bank’s collapse as banks ran out of money. This process of customers withdrawing their deposits, known as a bank run, quickly spread to other banks
.
O- Overproduction: Companies and farmers kept producing goods at the WWI level, even though it was long over. As a result, prices fell, factories closed, and workers were laid off.
P - Purchase reduction: Consumers stopped buying goods at the WWI levels. When combined with overproduction, this really hurt the economy.
S- Stock market crash: Unregulated credit and buying on margin led to the stock market crash, which helped start the Great Depression.
What is Black Tuesday?
Black Tuesday refers to October 29, 1929, when the United States stock market crashed an additional 12% in value. This began a chain of events that led to the Great Depression, a 10-year economic slump that affected all industrialized countries worldwide. Though this wasn’t the only cause of the Great Depression, it was one of the biggest because brokers were forced to sell off the stocks purchased for their customers on margin as the stock market began to fall. This created a snowball effect; as stocks continued to fall, more speculators were sold out.
What was the Dust Bowl?
The Dust Bowl was another major contributor to the economic struggles of the Great Depression. The Dust Bowl was an environmental disaster that occurred in the 1920s in the American West, particularly in Kansas and Oklahoma. It was characterized by high winds, low rainfall, and poor soil management, which resulted in widespread crop failure and environmental degradation.
Many lost their farms and were forced to leave the area. The majority went to California and became known as “Okies”. Many of these farmers were already struggling due to overproduction.
In 1930, Congress raised tariffs to record highs by passing the Smoot-Hawley Tariff Act. What effect did this have on the economy?
The idea behind the 1930 Smoot-Hawley tariff increase was to protect American businesses from foreign competition. Instead, it caused other countries to increase their own tariffs in retaliation, slowing global trade and worsening the Great Depression. This “fix” for the depression ended up reducing global trade by 66%.
What was Herbert Hoover’s initial approach to the crash of the economy?
Hoover believed in a laissez-faire or hands-off approach to economic policy. He feared that providing direct aid to people in need would cause them to lose their incentive to work toward financial success. He initially favored a hands-off approach, but when things became worse, he eventually took action but it was too late. His hands-off approach cost him the election of 1932, as he was blamed for not handling the crisis effectively.
What was the Reconstruction Finance Corporation?
Established in 1932, the Reconstruction Finance Corporation was one of Herbert Hoover’s attempts to aid the ailing U.S. economy. The agency gave $2 billion in aid to state and local governments, railroad companies, banks, and other businesses. The Corporation was a model for several of the New Deal agencies.
In 1932, Herbert Hoover attempted to revive the U.S. economy by signing the Emergency Relief and Construction Act. What did this act provide?
The Emergency Relief Act was the first ever federal relief act, which released funds for public works projects (such as highways and building projects) throughout the country.
The Emergency Relief Act was expanded by President Roosevelt as part of his New Deal line of programs.
What were Hoovervilles?
They were shantytowns built by unemployed and destitute people during the Depression of the early 1930s. They were named “Hoovervilles” to mock President Hoover’s hands-off approach. Men and women lived in lean-tos made of scrap wood and metal, and families went without meat and fresh vegetables for months.
What was Bonus Army, and how did President Herbert Hoover react to their demands?
In 1932, thousands of unemployed veterans marched on Washington D.C. and demanded immediate payment of the bonus certificates that had been awarded to them for their service during WWI. The certificates were not supposed to be cashed until 1945, but the bonus army wanted Congress to pass a bill so they would be paid immediately. The bill would not make it through the Senate.
As the Bonus Army stayed in D.C. tensions continued to rise. Eventually, President Hoover ordered the military and police to clear them out, resulting in chaos and violence. Politically, this was a disaster for Hoover and his chances at re-election.
