The Stock Market Crash, the Great Depression, and the New Deal Review I

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The Stock Market Crash, the Great Depression, and the New Deal Review I

(Please use answers to questions # 1 – 39)

The ________ ____________ was a period of severe economic hardship, which lasted in the United States from 1929 to World War ___. Three major factors caused the Great Depression: 1) the _______ ___________ crash, 2) the near collapse of the nation’s ___________ system, 3) high _____________ ___________. After World War I, the United States was a _________ power. During the early twenties, Americans were very optimistic about the nation’s __________. As a result, stock prices steadily rose and the _________ __________ boomed. In the early years of the decade, there was an excessive expansion of __________. This meant it was simply _____ ________ for Americans get credit. Two consequences of easy credit were Americans made investments with ___________ money, and there was ________________ in the stock market.

______________ is the act of buying something at a low price in the hope of selling it later at a profit. One way people make money from stock is by _____________. The largest stock market in the United States is the _______ _________ __________ ______________. Between 1920 and 1929 prices on the New York Stock Exchange steadily ___________. Consequently, during this period many stock market speculators became very ___________. Some of these investors became greedy and decided to buy _________ on margin. Buying stock on margin meant the investors were buying stock on ___________. Margin buying led to _______________ in the stock market. When prices on the New York Stock Exchange dropped in 1929, many investors ________ their stock in hopes of paying off their loans. This action caused stock prices to ________ even lower. This downward cycle in the stock market caused the New York Stock Exchange to _________.

The _______ stock market crash had several different causes. First, although business was booming, many investments in the stock market were made with ____________ money. This led to ____________________. Second, this overspeculation was made worse, because there was an excessive (too much) expansion of __________. Third, business failures led to __________________. Fourth, savings deposits in banks had been invested in the ________ ___________. Fifth, when the stock market collapsed, many of these banks literally ran out of _________ and were forced to close. The stock market crash had two major consequences. First, clients panicked and tried to __________ their money from the banks, but the banks often had no money to give them. Second, because of the lack of available funds, there were _____ new investments.

The ________ __________ System functions as the central bank of the United States. A Federal Reserve Bank is a _________ bank, which means only a ________ can have accounts and obtain loans from the Federal Reserve. If a bank needs to borrow money, it may do so from the _________ __________ Bank. However, a bank must pay ____________ on its loans from the Federal Reserve. The ___________ appoints the members of the Federal Reserve Board, which sets the policy for the twelve Federal Reserve banks to follow. Two functions of the Federal Reserve Board are: 1) to oversee the actions of the __________ __________ ________, 2) to set the __________ rate, which banks must pay to borrow money from the Federal Reserve.

The Federal Reserve Board’s power to set interest rates is important, because it enables the Federal Reserve to control the nation’s ____________ ___________. If the Federal Reserve Board believes the American economy is slowing down, then it may ___________ interest rates. Lower _________ _______ encourage people to borrow money. When people spend this borrowed money, they increase the __________ (choose either supply or demand) for goods and services. Increased demand causes employers to hire ________ (choose either more or fewer) workers to make additional goods. Thereby, the ____________ ____________ stimulates or jumpstarts the economy simply by cutting interest rates.

If the Federal Reserve Board believes the American economy is overheating and thereby causing inflation, then it may __________ interest rates. ___________ is the economic condition when prices increase and the value of the dollar decreases. In other words, during inflationary times, the dollar buys ______ than it did previously. The Federal Reserve _________ interest rates to combat inflation, because it wants to discourage people from borrowing money. If people borrow less, then they spend (choose either more or less) ______. A decrease in spending means a decrease in _________ (choose either supply or demand). If demand drops and supply stays the same, then prices should (choose either rise or fall) __________. Thereby, the Federal Reserve lowers _____________ by raising interest rates.

During the late twenties, the Federal Reserve tried to discourage overspeculation in the _______ market. Unfortunately, its efforts failed. The Federal Reserve was/was not able to prevent the 1929 stock market crash from triggering the Great Depression.

When the New York Stock Exchange crashed, hundreds of ______ failed. These banks failed because: 1) they had invested people’s _________ _________ in the stock market, 2) they had loaned money to stock speculators who were buying stock on _________. Because of the bank failure after the stock market crash, American lost ________ in the nation’s banking system. When they lost confidence in the banks, thousands of Americans rushed to _______ their savings from the banks, before they closed. These “runs on the banks” placed even more pressure on the nation’s banking system and caused even more banks to _______.

During the first three years of the Great Depression, approximately ______ banks failed. At least _____ million Americans lost their savings. This widespread collapse of the American banking system between 1929 and 1932 led to a severe contraction in the nation’s ______ ______. Deflation resulted.

A ____________ _________ is a tax on imports that is so high Americans cannot afford to buy foreign goods. After the 1929 stock market crash, Congress tried to help American business by passing the __________-_________ Tariff. This tariff law set the ________ tariff rates in American history. Congress hoped the Hawley-Smoot Tariff would encourage Americans to buy __________-made goods. Instead, it caused __________ countries to retaliate or get back at the United States by passing high tariffs of their own. These retaliatory tariffs made American exports so expensive that foreigners could/could not afford to buy American goods. In short, the erection of trade barriers by all of the world’s major industrial owners after the 1929 stock market crash strangled ______ _______.

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