basic economic terms: 9/9/14 stocks / stock market: ownership of a “share” or part of a...
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Basic Economic Terms: 9/9/14 Stocks / Stock Market:
Ownership of a “share” or part of a company. Value rises and falls with the profits of the company.
“Boom” vs. “Bust”:Boom = Expansion of economy. (Strong/Good)
Bust = Contraction/shrinking of economy. (Weak/Bad)
GDP / GNP:“Gross Domestic” or “Gross National” Product. The total goods/services a nation creates. Measure of economic strength.
Tariff:Tax on foreign goods. Designed to help domestic producers.
Dow Jones Industrial Average (”Dow Jones”):Average price of certain stocks. Measure of stock market strength.
Capitalism: (*Discuss with your group. What does this even mean? COME UP WITH (5) KEY WORDS OR PHRASES.)
Basic Economic Terms: 9/9/14 Stocks / Stock Market:
Ownership of a “share” of a company. Value rises and falls with the profits of the company.
“Boom” vs. “Bust”:Boom = Expansion of economy. (Strong/Good)
Bust = Contraction/shrinking of economy. (Weak/Bad)
GDP / GNP:“Gross Domestic” or “Gross National” Product. The total goods/services a nation creates. Measure of economic strength.
Tariff:Tax on foreign goods. Designed to help domestic producers.
Dow Jones Industrial Average (”Dow Jones”):Measure of stock market strength. Average price of certain stocks.
Capitalism: Economic system where trade/industry is owned by private individuals, not the government, to earn a profit.
“Boom” Factors of the 1920s:1. Laissez-faire Government Policies:
Low taxes, little government interference.
2. High Consumer SpendingBuying on “credit” / installments, “Victory Bonds!”
“Boom” Factors of the 1920s:1. Laissez-faire Government Policies:
Low taxes, little government interference.
2. High Consumer SpendingBuying on “credit” / installments, “Victory Bonds!”
3. Businesses Expand ProductionMore factories, more workers
4. Federal Reserve (Gov’t) Keeps Interest LowEasy credit/loans for people/business
5. Businesses Expand Production FurtherLeads to overproduction
6. Stock Prices Soar!No limits on stock market, Buying on Margin, Insider Trading
… Boom!
The Circular Flow of Economic Activity
Workers / Consumers
Businesses / Employers
$
$
Products
Labor
“Bust” Factors1. Farmers “overproduce” crops – prices fall.
Farm Prices Drop!
But why does that matter?
“Bust” Factors1. Farmers “overproduce” crops – prices fall.
2. Businesses “overproduce” products – same.
3. Prices drop … but so do wages. Less spending.
(Effects of WWI)
4. Europeans can’t buy U.S. products.
5. U.S. investors buy stocks instead of lending to Europe.
Effects ofWorld War I:
America enters the war a debtor nation and ends as a creditor.
US overproduces food for Europe.
US lends money to European nations after the war – many can’t repay.
Leads to strain on US banks when loans come due.
“Bust” Factors1. Farmers “overproduce” crops – prices fall.
2. Businesses “overproduce” products – same.
3. Prices drop … but so do wages. Less spending.
(Effects of WWI)
4. Europeans can’t buy U.S. products.
5. U.S. investors buy stocks instead of lending to Europe.
6. Business cut back on production – lay off workers.
7. Demand drops more (less money!)
“Bust” Factors, Cont’d8. Stock “speculation”(Buying on Margin/Insider
Trading) leads to “crash.”
The Stock Market Crash
October 29, 1929: “Black Tuesday,” Dow Jones Dropped 12.8% as 16.4 million shares were traded.
“Bust” Factors, Cont’d8. Stock “speculation”(Buying on Margin/Insider
Trading) leads to “crash.”
9. Investors can’t repay loans to banks. Banks run out of money – some go out of business!
10. Bank “runs” occur – people rush to go get their money out! Sometimes … it isn’t there.
Bank Runs!
Banks only keep a part of depositors’cash on hand. Banks cannot give everyone their money at the same
time!
“Bust” Factors, Cont’d8. Stock “speculation”(Buying on Margin/Insider
Trading) leads to “crash.”
9. Investors can’t repay loans to banks.
10. Bank “runs” occur – banks run out of money!
11. People panic – stop buying products or investing.
12. Businesses fail! = Beginning of Great Depression
Unemployment:
1/4 of the Nation Becomes
Unemployed!
Notes for Herbert Hoover: 9/15/14
President from 1928 – 1932 (Republican)
Believer in individualism (“rugged individualism”) and lack of governmental involvement.
Blamed for major problems of Great Depression.
Came into office only a year before Crash of 1929.
1928 Election: Hoover Wins!
Notes for Herbert Hoover: 9/15/14
President from 1928 – 1932 (Republican)
Believer in individualism and lack of governmental involvement.
Blamed for major problems of Great Depression.
Came into office only a year before Crash of 1929.
Coined famous phrases …
Hoovervilles
Hoover Flags
Hoover Blankets
Hoover’s Actions: Hoover steps in:
Hawley-Smoot Tariff: Unsuccessful!
Hawley-Smoot Tariff
Hawley-Smoot Tariff (1930)
October 1929: President Hoover publicly pledged to sign the Hawley-Smoot Tariff which would raise tariffs on some foreign goods as high as 60%.
Hoover’s Actions: Hoover steps in:
Hawley-Smoot Tariff: Unsuccessful!
Reconstruction Finance Corporation (RFC) lends money to banks and businesses: “bail out.” [1932]
Home Loan Bank Act: Offered low-cost loans for new home buying and lowering mortgage rates. [1932]
…Too little, too late.
Scandal: The “Bonus Army” June 1932: WWI veterans
march on Washington. Demand “bonus” owed.
House approved payment but, but Senate overrides (supported by Hoover).
Army ordered to remove the protestors from “the Mall.”
In the resulting conflict, dozens injured. One child was killed!
Leads to major scandal!
Bonus Army Sample Notecard:BONUS ARMY (Front)
1932 (When)(Back)
(What) WWI vets march on Washington.
Demand “bonus” money owed. Denied.
Hoover orders removal.
Many injured! Scandal for Hoover.
(Why) Increases his unpopularity, affects his reelection!
Activity: Causes of the Great Depression “Quick Write”
Take out a piece of paper and take 2-3 minutes to write as many reasons why the Great Depression happened as possible. Use bullet points. Overproduction:
Industrial Agricultural
Overextension of credit (Overconsumption?):
Individual Business/Stock Market
International effects: World War I Tariff Barriers
Lack of government oversight … ?
1928 Election: Hoover Wins! (Republican)
Election of 1932: Franklin Delano Roosevelt (FDR) Wins!
(Democrat)
Overview of FDR’s “New Deal”:
1. Relief: to provide jobs for the unemployed and to protect the needy.
2. Recovery: to get the economy back into high gear by direct aid to businesses and farmers.
3. Reform: to regulate banks, and to fix harmful labor and business practices.
Overall objective: to save the American economy!
Political Spectrum:
Political Spectrum:
FDR Criticism Chart: In your class notes, create a “T-chart.” With your
partners: Try to categorize at least (3) critics on each side and describe their criticism.
Left (Liberal) Right (Conservative)
National Recovery Act (NRA)
Purpose: recovery of industry
Created a partnership of business, labor, and government.
Established a minimum wage, child labor laws, and limited working hours.
Declared unconstitutional in 1935.
Agricultural Adjustment Act (AAA)
Purpose: recovery of agriculture
Paid farmers who agreed to reduce production of basic crops, e.g. cotton, wheat, tobacco, hogs, and corn
Designed to help large-scale farmers rather than individuals.
Ruled unconstitutional in 1936.
Federal Emergency Relief Admin (FERA)
Purpose: relief to individuals
Gave money to states and municipalities so they could distribute money, clothing, and food to the unemployed.
Declared unconstitutional in 1935.
Civilian Conservation Corp (CCC)
Purpose: relief to individuals
Gave outdoor work to unemployed men between the ages of 17 and 29.
Designed to help build infrastructure, i.e. bridges, dams, and other public buildings.
Federal Deposit Insurance Corporation (FDIC)
Purpose: reform of banking industry
Part of the Glass-Steagall Banking Reform Act.
Insured individual bank accounts up to $2,500.
Brings confidence to investors & builds trust in banks.
