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credit
by 1929 the total number of purchases made with credit was 6 times higher than it was in 1915
purchases on credit in 1929 reached a total of $7 billion
the government encouraged this in the 1920s by keeping intrest rates low
they thought it would promote business by enabling consumers to buy goods when they didn't have money
this could have led to a depression when banks ran out of money to borrow and no one could by anything because of how in debt they were
banking crisis
the stock market crash provoked a major banking crisis
some banks were forced to close because they were so in debt because no one paid their loans back and because everyone was withdrawing the money they did have because of a rumor
fear of additional bank failures further aggravated this
costumers lost entire life savings when banks closed
between 1930 and 1932 more than 5000 banks failed
the 1930s crash of one bank in NYC wiped out some 400,000 depositers
business failures
many american businesses suffered on top of the stock market crash
costumers weren't able to buy their products
many companies trimmed inventories, scale back production schedules, and lay off employees
more than 26,000 businesses went bankrupt in 1930 and another 28,285 the next year
GNP- total value of all goods and services produced in a year
it reached $103 billion in 1929 and $56 billion in 1933
unemployment reached staggering levels which marked the beginning of the Great Depression
global depression
economic trouble in other places around the world like Europe was one of the factors that brought down the U.S. economy
massive war debts built up European countries
world trade rapidly declined during the late 1920s and the early 1930s
foreign consumers weren't able to purchase American goods, and some industries relied on trade
now there were high tariffs on imported goods
smoot-hawly tariff- highest tariff in U.S. history (to help American businesses) it eliminated the American market for foreign manufacturers and industries
made people buy American goods, not foriegn
income gap and consumer debt
between 1923 and 1929 the disposable income of the wealthiest 1% of Americans increased by 63%- rich got richer
income of the poorest 93% decreased by 4%- poor got poorer
meaning most people didn't have the buying power needed to boost the economy
people say if laborers and farmers made more the depression would have been less severe
got around income gap by paying with credit which economic chaos
no one could pay debts which made businesses crash
business cycle
free-enterprise economy- economic system with few government regulations
surplus- extra goods
business cycle: regular ups and downs of a business in a free- enterprise economy
industries increase production and hire more workers during prosperus times. industries then cut back on production and lay off workers.
but this Great Depression is not a part of the normal cycle.
stock market crash
banks and bankers gave out loans to people that had no money
allowed people to buy unmargin- only needed 10% of your own money for a loan
goes after the little man
when they ran out of money, they got $25 more million dollars to loan out
laissez faire- form of government, they had no say
people thought that in stocks you could not loose
stocks manipulated by pools- wealthy men strategy