Stock Market Crash of 1929 and the Effects on the Economy
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America was enjoying a time of prosperity during the Roaring 1920's. People were working and the stock market was moving upward. Most of the country believed that everything was fine until the stock market crashed in October of 1929. This caused panic and fear across the country and marked the beginning of the Great Depression. Let us take a look at several aspects of the Stock Market Crash, including the impact that it had on the economy.
1. Causes
Experts agree that the Stock Market Crash was not caused by just one factor. Instead, it was a combination of several events occurring at the same time that resulted in this country's worst financial calamity.
Read about the events that led to the panic in October 1929.
How bad was the stock market? Some people jumped out of buildings to their death rather than face financial ruin. Take a look at a chart of the Dow Jones Average from 1920-1939. How high was it before the crash and how far did it fall? Can you calculate the percent drop? Also, take a look at the stock prices of some of the larger companies of the time before and after the crash.
4. Effects on the Economy
The Stock Market Crash was the beginning of the Great Depression and it had a rippling affect throughout the economy and the nation. It produced a downward spiral that negatively impacted every segment of the population. The stock market decline caused many banks to fail, which caused many businesses to fail, which caused unemployment to skyrocket, which caused consumers to have less purchasing power, which forced existing businesses to lower their prices, and so forth. It took years to break this vicious cycle. Take a look at some areas that sustained a tremendous amount of damage during the Depression.
| A. Bank Failures |  |
What is a run on a bank?
After the market collapsed, people were afraid and disillusioned. Some did not trust financial institutions any longer and they went to get their money out of the banks. At times, the banks were overwhelmed and were not able to meet the demand for money. This caused them to close their doors; many of them forever. What do you think happened to the people's money in these banks that failed? How many banks do hear of failing today? How many banks do you think failed during the Great Depression?
See if you can find how many businesses failed during the first 3 years of the Depression. What kind of effect do you think that had on the economy? Also, take some time to read a few of the personal accounts of people during the Depression.
| C. Unemployment Rates |  |
What year did the unemployment rates peak and at what percentage? How does that compare with today's rate? With so much negative news, it is no wonder that this period in American history is called the Great Depression.
5. Recovery
Stockbrokers often advise their clients to buy stock and hold it for the long term. If a person followed that advise and held stock through the crash, how long did it take the market to get back to the highest level it reached in 1929? Take a guess, then click on Recovery to see for yourself.
