5 Causes Of The Great Depression

1) Buying on Credit 2) Underconsumption/ Overproduction 3) Unequal Distribution of Wealth 4) Margin Buying 5) Stock Market Crash

-buying on credit: the bank pays for what you buy and you pay the bank back by a certain time or you're charged more money -with this system, people could make a monthly, weekly payment on an item that they wanted or needed but didn't have the money for

$100 (credit) -$ 10 (interest) ------ $110/ 12 months - so you pay $9.17 per month

-changes in supply and demand helped bring about and lengthen the Great Depression -the American farms and factories produced large amounts of goods and products during the prosperity before the Great Depression

-between 1920 and 1929, the income of the wealthiest 1% of the population rose by 75% compared with a 9% increase for other 99% of the population -more than 70% of the nation's families earned less than $2,500 per year, then considered the minimum amount needed for a decent standard of living -even families earning twice that couldn't afford many of the household products than manufacturers produced * economists estimate that the average man or woman bought a new outfit of clothes only once a year * scarcely half the homes in many cities had electrical lights or a furnace for heat •only one city home in ten had an electric refrigerator -this unequal distribution of income meant that most Americans couldn't participate fully in the economic advances of the 1920s -many people didn't have the money to buy the flood of goods that factories produced •the prosperity of the era rested on a fragile foundation -people in urban areas (cities) benefited the most

-investing in the stock market increased 1920s -people could buy stocks on margin- 10% down -> finance the rest -as long as the stock prices kept going up, the system worked -people were overpaying for stocks -in the early 1920s the company prices were rising, then they stayed the same until about 1927 when they rapidly dropped -stocks prices were rising rapidly from 1920 until October 29th, 1929 when they rapidly dropped -the specular bubble was in the middle until after the stock prices dropped then the specular bubble decreased a lot then stayed down

the difference between real value and what people are willing to pay

-in the early 1920s the company prices were rising, then they stayed the same until about 1927 when the rapidly dropped -stocks prices were rising rapidly from 1920 until October 29th, 1929 when they rapidly dropped -the specular bubble was in the middle until after the stock prices dropped then the specular bubble decreased a lot then stayed down

Investing $100 into a $10 share- you can buy 10 shares Margin: •$100- bank loans you $900 (you now have $1,000), you can buy 100 shares

-Thursday, October 24, 1929: sell orders by nervous speculators concerned about ,market decline (people noticed the stock market was crashing and wanted to get rid of/sell their stocks) •panic set in -> increased selling ($3 billion loss) -prices rallied due to bankers buying pools -Tuesday, October 29, 1929: stock bubble burst •stock holder lost $10 billion •between 1929 (peak) and 1933 (low point): $87-$18 billion loss of value