BOOM

(Prosperity)
High Consumer Spending
(Cash in Victory Bonds, InstaIIment Buying)
FederaI Reserve Keeps Interest Rates Low:
Easy Credit for IndividuaIs & Businesses
Businesses Expand Production:
BuiId More Factories/Stores, Hire More Workers
Stock Prices Soar in UnreguIated Market:
"Buying on Margin," "Insider Trading,"
Laissez-faire Gov. PoIicies. Low Taxes
Businesses Expand Production Further
The CircuIar FIow of Economic
Activity
Workers/
Consumers
Businesses
(Producers/
EmpIoyers)
$
$
Products
Labor
Bust
(Great Depression)
Farmers Produce SurpIus in 1920s. Low Crop Prices
ecline in Construction
Bust
(Great Depression)
Farmers Produce SurpIus in 1920s. Low Crop Prices
Domestic Demand Begins to Drop
DecIine in Construction of New Homes
Investors Buy U.S. Stocks Instead of Lending to Europe
Europeans Can't Afford to Buy American Products
%,riff ncre,ses
HawIey-Smoot Tariff (1930)
October 1929. President Hoover pubIicIy pIedged
to sign the HawIey-Smoot Tariff which wouId raise
tariffs on some goods as high as 60%.
Bust
(Great Depression)
Farmers Produce SurpIus in 1920s. Low Crop Prices
Domestic Demand Begins to Drop
Investors Buy U.S. Stocks Instead of Lending to Europe
Europeans Can't Afford to Buy American Products
Businesses Cut Back on Production. Lay Off Workers
Domestic Demand Drops Even More
Businesses OvervaIued. Stock Market Crashes
DecIine in Construction of New Homes
%e Stock M,rket
Cr,s
October 24: "BIack Tuesday," Dow Jones Dropped 12.8%
as 16.4 miIIion shares were traded
October 29: "BIack Thursday," Dow Jones Dropped an
additionaI 12%, Iosing $14 biIIion in vaIue
TotaI Losses were $30 biIIion in one week (10 times the
FederaI Budget in 1929)
Bust
(Great Depression)
Farmers Produce SurpIus in 1920s. Low Crop Prices
Domestic Demand Begins to Drop
Investors Buy U.S. Stocks Instead of Lending to Europe
Europeans Can't Afford to Buy American Products
Businesses Cut Back on Production. Lay Off Workers
Domestic Demand Drops Even More
Businesses OvervaIued. Stock Market Crashes
Stock Investors Can't Repay Loans to Banks
DecIine in Construction of New Homes
B,nk Runs
Banks OnIy Keep a Fraction of
Depositors' Cash on Hand. Banks
Cannot Give Everyone Their Money at
the Same Time
Bust
(Great Depression)
Farmers Produce SurpIus in 1920s. Low Crop Prices
Domestic Demand Begins to Drop
Investors Buy U.S. Stocks Instead of Lending to Europe
Europeans Can't Afford to Buy American Products
Businesses Cut Back on Production. Lay Off Workers
Domestic Demand Drops Even More
Businesses OvervaIued. Stock Market Crashes
Stock Investors Can't Repay Loans to Banks
Bank "Runs" Occur as Banks Run Out of Cash
DecIine in Construction of New Homes
Bust
(Great Depression)
Farmers Produce SurpIus in 1920s. Low Crop Prices
Domestic Demand Begins to Drop
Investors Buy U.S. Stocks Instead of Lending to Europe
Europeans Can't Afford to Buy American Products
Businesses Cut Back on Production. Lay Off Workers
Domestic Demand Drops Even More
Businesses OvervaIued. Stock Market Crashes
Stock Investors Can't Repay Loans to Banks
Bank "Runs" Occur as Banks Run Out of Cash
Panicked Consumers Stop Spending/Investing
DecIine in Construction of New Homes
Business F,ilures
Bust
(Great Depression)
Farmers Produce SurpIus in 1920s. Low Crop Prices
Domestic Demand Begins to Drop
Investors Buy U.S. Stocks Instead of Lending to Europe
Europeans Can't Afford to Buy American Products
Businesses Cut Back on Production. Lay Off Workers
Domestic Demand Drops Even More
Businesses OvervaIued. Stock Market Crashes
Stock Investors Can't Repay Loans to Banks
Bank "Runs" Occur as Banks Run Out of Cash
Panicked Consumers Stop Spending/Investing
Businesses FaiI
DecIine in Construction of New Homes
&nemployment
1/3 of the
Nation
Becomes
UnempIoyed!
Bust
(Great Depression)
Farmers Produce SurpIus in 1920s. Low Crop Prices
Domestic Demand Begins to Drop
Investors Buy U.S. Stocks Instead of Lending to Europe
Europeans Can't Afford to Buy American Products
Businesses Cut Back on Production. Lay Off Workers
Domestic Demand Drops Even More
Businesses OvervaIued. Stock Market Crashes
Stock Investors Can't Repay Loans to Banks
Bank "Runs" Occur as Banks Run Out of Cash
Panicked Consumers Stop Spending/Investing
Businesses FaiI
DecIine in Construction of New Homes
UnempIoyment Increases