US Economy Weaknesses and Wall Street Crash
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Questions and Answers

What was the main consequence of banks ceasing to buy shares on October 28th?

  • Stabilization of share prices
  • Increase in investor confidence
  • Panic selling intensified (correct)
  • Record low trading volumes

What notable event occurred on Black Tuesday, October 29th?

  • Heavy buying activity by investors
  • Price stabilization following a sell-off
  • 16.4 million shares traded with no buyers (correct)
  • A government intervention announcement

Which event occurred the day after Black Thursday, October 25th?

  • Only 3.5 million shares traded
  • President Hoover's address about the market (correct)
  • Banks actively buying shares
  • A significant rise in stock prices

How many shares were traded on the day described as Black Thursday?

<p>13 million shares (B)</p> Signup and view all the answers

What was a reaction to falling share prices on October 23rd?

<p>Speculators were told to pay off bank loans and sell shares (C)</p> Signup and view all the answers

What was the primary reason US companies faced declining profits in the late 1920s?

<p>Saturation of the US market (B)</p> Signup and view all the answers

What does 'Buying on Margin' refer to?

<p>Borrowing most of the share value to purchase stocks (D)</p> Signup and view all the answers

What triggered the panic selling of shares in September 1929?

<p>Economic slowdowns and declining industrial output (B)</p> Signup and view all the answers

How did speculators exacerbate the banking crisis?

<p>By failing to repay bank loans after share prices declined (B)</p> Signup and view all the answers

What action did the six major banks decide to take on 25 October?

<p>They agreed to buy shares to stabilize prices (A)</p> Signup and view all the answers

What was the effect of the panic selling on October 29, 1929?

<p>Share values rapidly decreased due to high volume of sales (D)</p> Signup and view all the answers

Around how many banks closed each year during the 1920s?

<p>500 (C)</p> Signup and view all the answers

What was one reason speculators became increasingly nervous in the late 1920s?

<p>A decrease in construction industry activity (B)</p> Signup and view all the answers

What economic issue contributed significantly to the Wall Street Crash of 1929?

<p>Oversaturation of consumer products (D)</p> Signup and view all the answers

How did the wealth gap affect consumer spending in the 1920s?

<p>It left a large portion of the population unable to purchase goods. (C)</p> Signup and view all the answers

What role did overproduction play in the lead-up to the Wall Street Crash?

<p>It caused a surplus that could not be sold. (A)</p> Signup and view all the answers

Which government policy exacerbated the issues faced by American farmers in the 1920s?

<p>Implementation of tariffs on European goods (A)</p> Signup and view all the answers

What effect did falling company profits have on the workforce?

<p>Layoffs and wage cuts (B)</p> Signup and view all the answers

What technology significantly increased the production capabilities of US industries in the 1920s?

<p>Mass production technology and assembly lines (B)</p> Signup and view all the answers

Which factor created competition for American farmers during the late 1920s?

<p>Cheap imports from Canada (A)</p> Signup and view all the answers

How did tariffs affect the ability of American industries to sell products overseas?

<p>They restricted access to foreign markets. (B)</p> Signup and view all the answers

What was one of the primary reasons for the downturn in the economy at the end of the 1920s?

<p>Decline in car sales (B)</p> Signup and view all the answers

What economic policy did the Republican Party support during the 1920s?

<p>Laissez faire economic policy (B)</p> Signup and view all the answers

How did speculators typically finance their stock purchases in the 1920s?

<p>Paying 10% in cash and borrowing the rest (D)</p> Signup and view all the answers

What happened in October 1929 that triggered a loss of confidence in the stock market?

<p>Speculators started to sell their shares simultaneously (B)</p> Signup and view all the answers

Which issue contributed to the financial instability of small rural banks in the 1920s?

<p>Inadequate cash reserves (D)</p> Signup and view all the answers

What event occurred on October 24, 1929, that marked a significant point in the stock market crash?

<p>Black Thursday (D)</p> Signup and view all the answers

In 1929, how much money did banks lend to speculators?

<p>$9 billion (B)</p> Signup and view all the answers

What was the belief that drove speculation in the stock market during the 1920s?

<p>Share prices would continue to rise (C)</p> Signup and view all the answers

What was a major sign of the economic troubles in 1929 before the Wall Street Crash?

<p>Declining car sales (D)</p> Signup and view all the answers

How did banks contribute to the speculative behavior before the stock market crash?

<p>By offering loans to speculators to buy on margin (C)</p> Signup and view all the answers

What effect did the rush to buy shares in 1928 have on share prices?

<p>Led to a steady increase in prices (D)</p> Signup and view all the answers

What was a significant consequence of speculators failing to pay back their loans?

<p>Bankruptcies of speculators (B)</p> Signup and view all the answers

What was the outcome for depositors if a small rural bank collapsed during the 1920s?

<p>They would likely lose virtually all their savings (C)</p> Signup and view all the answers

What demographic change occurred from 1920 to 1929 regarding stock ownership?

<p>Increased from 4 million to 20 million (B)</p> Signup and view all the answers

What happened to share prices after the Babson Break in September 1929?

<p>They experienced a brief recovery before declining again (A)</p> Signup and view all the answers

What was the approximate number of banks operating in the USA during the 1920s?

<p>30,000 (B)</p> Signup and view all the answers

Flashcards

Wealth Gap

Unequal distribution of wealth, where a small percentage of the population holds a large portion of the wealth while the majority struggles financially.

Overproduction

Producing more goods or services than the market can absorb, leading to surplus and falling prices.

Saturated Market

A situation where consumers have already purchased all the goods or services they need, leading to decreased demand.

Tariffs

Taxes imposed on imported goods to protect domestic industries.

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Hawley-Smoot Tariff Act

A law passed by the US Congress in 1930 that raised tariffs on imports, contributing to the decline of international trade.

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How did rising tariffs contribute to the Wall Street Crash?

Increased tariffs on US goods by European countries retaliated against the Hawley-Smoot Tariff Act, reducing demand for American products, hurting American businesses, and contributing to the crash.

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How did overproduction by US industries contribute to the Wall Street Crash?

Overproduction led to a saturated market, where consumers had already purchased all the goods they needed. This resulted in declining sales, falling profits, and ultimately, the crash of the stock market.

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How did the wealth gap contribute to the Wall Street Crash?

A large wealth gap meant that a small percentage of the population controlled most of the money. When the market became saturated, these wealthy individuals had already bought all the products they needed, leading to a decrease in demand and further contributing to the crash.

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Buying on Margin

Borrowing money to buy stocks, hoping for a quick profit, typically using a small down payment and taking a large loan.

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Speculation in the 1920s

A widespread practice of buying stocks with borrowed money, driven by the belief that stock prices would continuously rise. This led to inflated share prices, a bubble economy, and ultimately, the crash.

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Impact of Speculation on the Crash

When share prices started to fall, speculators panicked and sold their shares, causing a rapid decrease in prices. This triggered a cascade effect, leading to more selling and further declines.

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What were signs of a weakening economy in the 1920s?

Construction slowed down, bank failures increased, car sales declined, industrial output dropped, and advertising spending remained high despite poor economic conditions.

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Role of Banks in the Crash

Banks fueled speculation by lending money to individuals for stock purchases. When the market crashed, borrowers couldn't repay their loans, causing banks to fail.

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Loss of Confidence in 1929

Speculators lost faith in the stock market, believing that prices would keep falling. They rushed to sell, exacerbating the crash.

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Speculators

Individuals who invested in the stock market, hoping for quick profits by buying and selling shares.

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Panic Selling

A sudden massive sell-off of shares driven by fear and uncertainty, causing a rapid decline in share values.

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How did US companies get hurt in the 1920s?

US companies were unable to easily sell their products overseas, leading to a saturated domestic market, reduced sales, and declining profits.

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What happened to speculators during the 1929 crash?

When share values plummeted, speculators couldn't repay their bank loans, leading to widespread financial losses and bankruptcies.

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What role did banks play in the 1929 crash?

Banks provided loans to speculators for buying shares, and when share values fell, the speculators couldn't repay, leading to bank failures.

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Why did speculators become nervous in the late 1920s?

Economic slowdown, signs of market weakness, and declining industrial output created a sense of uncertainty and fear among speculators.

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What did major banks do to try to stop the crash?

They attempted to buy shares and stabilize share prices, but their intervention ultimately failed to prevent the market crash.

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Black Thursday

October 24th, 1929, when nearly 13 million shares were sold, triggering panic selling and pushing prices down further.

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Black Tuesday

October 29th, 1929, when 16.4 million shares traded, no buyers were found, panic selling intensified, and share values plummeted.

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Why did banks stop buying shares?

Banks stopped buying shares on October 28th to prevent further panic selling. Their aim was to stabilize the market, but it ultimately contributed to the crash as fewer buyers were available.

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Speculators' Role

Speculators heavily contributed to the crash by taking out loans to buy shares, hoping for quick profits. When prices fell, they were forced to sell to repay their loans, adding fuel to the fire of selling.

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Laissez-faire Economics

A policy where the government minimally intervenes in the economy, allowing businesses to operate with little regulation.

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Liquidity in Banking

The amount of readily available cash reserves a bank has to cover customer withdrawals and make loans.

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Speculation in the Stock Market

Buying and selling stocks in anticipation of rapid price increases, risking significant losses if prices fall.

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What was the main cause of the Wall Street Crash?

A combination of factors, including excessive speculation, declining industrial activity, and a banking system vulnerable to collapse.

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What was the role of banks in the Wall Street Crash?

Banks lent money to speculators to buy stocks, which fueled the stock market bubble. When the bubble burst, banks suffered heavy losses and many collapsed, contributing to the financial crisis.

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What were the early warning signs of the Wall Street Crash?

Declining car sales, slow construction activity, and a drop in magazine advertising spending indicated consumers were spending less, signaling an economic downturn.

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What triggered the panic selling on Black Thursday?

Speculators, facing calls to repay loans on their stock purchases, began selling their shares en masse, driving prices down and causing widespread panic.

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Study Notes

Underlying Weaknesses of the US Economy (1920s) and the Wall Street Crash

  • Wealth Gap: In 1925, nearly 42% of the population lived below the poverty line with an annual income of less than $2000. This meant many couldn't afford basic necessities.
  • Overproduction: Industrial mass production and new management techniques (Taylorism) led to a surplus of goods, creating a saturated market. Sales dropped, thus profits and share prices.
  • Farmers' Overproduction: Farmers used new technologies (e.g. combine harvesters) to produce more crops. This, combined with tariffs that restricted exports, and competition from other countries, depressed farming profits.
  • Lack of Export Markets: US industries faced tariffs from other countries, which limited their ability to sell products abroad. This resulted in a saturated domestic market, leading to decreased sales and falling profits, which lead to a decline in share values.

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Year 10 Wall Street Crash (Oct 1929) PDF

Description

Explore the underlying weaknesses of the US economy during the 1920s that led to the Wall Street Crash. This quiz covers key topics such as the wealth gap, overproduction, farmers' struggles, and limited export markets. Test your knowledge on how these factors intertwined to create an economic crisis.

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