HIS CH 14 1-2-3 THE DEPRESSION

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Multiple Choice
Identify the choice that best completes the statement or answers the question.

Economic Troubles on the Horizon

As the 1920s advanced serious problems threatened economic prosperity. Though some Americans were becoming wealthy, many more could not earn a decent living.

INDUSTRIES IN TROUBLE

The prosperity of the late 1920s hid troubling weaknesses that would ultimately lead to the Great Depression of the 1930s. A number of key basic industries, such as textiles, steel, and railroads, barely made a profit. Railroads lost business to new forms of transportation (trucks, buses, and private automobiles) Textile mills faced competition from foreign producers in Japan, India, China, and Latin America

Mining and lumbering, which had expanded to supply wartime needs during World War I, faced less demand for their goods in peacetime. Coal mining was especially hard-hit, in part due to stiff competition from new forms of energy, including hydroelectric power, fuel oil, and natural gas. By the early 1930s, these sources supplied more than half the energy that had once come from coal.

The construction of new houses fell steadily after peaking in 1925. Between 1925 and 1929, applications for new building permits declined by approximately 25 percent. New houses require building materials, new furnishings, new equipment, and new appliances. Construction also creates jobs.

When housing began to decline, so did other businesses that depended on construction . Furniture companies that had expected an expanding market produced too many goods and cut their labor forces to reduce inventories . The story was similar for makers of household appliances .

Which best describes the industries, such as textiles, steel, and railroads in the 1920s?

a.	they had trouble making a profit	c.	they were expanding and hiring employees
b.	they made a great deal of money	d.	they were expanding into overseas markets

The demand for coal and lumber was _____ during World War I but _____ after the war was over.

a.	low - rose	c.	level - rose
b.	high - dropped	d.	low - increased sharply

New house construction began to _____ after World War One

a.	rise	c.	fall
b.	level off

In economics, when one industry declines all of the industries that supply the declining industry decline also.

a.	true	c.	true except for housing
b.	false

FARMERS NEED A LIFT

Perhaps more than any other part of the economy, agriculture suffered in the 1920s . During World War 1, international demand for crops such as wheat and corn had soared, causing prices to rise. Farmers had planted more crops and taken out loans to buy land and equipment. After the war, demand for farm products fell, and crop prices declined by 50 percent or more.

To compensate for falling prices, farmers boosted production in the hope of selling more crops, but this only depressed prices further. Farmers who had gone into debt had difficulty in paying off their loans . Many lost their farms when banks foreclosed and seized the property as payment for the debt. As farmers began to default on their loans, many rural banks began to fail

To prop up the farm sector, members of Congress proposed a complicated piece of legislation called the McNary-Haugen bill . This proposal called for federal price supports-the support of certain price levels at or above market values by the government-for key products . The bill had three major provisions:

1- The government would buy surplus crops, such as wheat, corn, cotton, and tobacco, at guaranteed prices that were higher than the market rate. "

2- The government would then sell these crops on the world market for the lower prevailing prices .

3- To make up for losses caused by buying high and selling low, the government would place a tax on domestic food sales, thus passing the cost of the farm program along to consumers.

Congress passed the bill twice, in 1927 and 1928, but each time President Coolidge vetoed it. Farm prices remained low, and farmers continued to struggle

When demand rises, such as the demand for food during World War One, _____

a.	prices fall and farmers make less money	c.	prices rise and farmers make less money
b.	prices rise and farmers make more money	d.	prices fall and farmers make more money

What did farmers do in response to the increased demand for farm products during World War One?

a.	Cut back production to make more profit	c.	Practiced conservation to conserve the land
b.	tooK a careful approach to planting	d.	Went into debt by taking out loans at the banks to plant more crops and expand farming.

After World War One ended, demand for farm products decreased and farmers were left with large debts and no way to make money to repay their loans.

a.	true	c.	partly true
b.	false

The government passed the McNary-Haugen bill . This proposal called for federal price supports. What was the purpose of the law?

a.	to help the farmers to sell their farms	c.	to insure that the farmers would make a profit for their products
b.	to help the banks recover their losses	d.	to lower farm prices

CONSUMERS HAVE LESS MONEY TO SPEND

As farmers' incomes fell, they bought fewer goods and services. Without money to spend, rural families could not buy the products of American industry. The same problem was evident among American consumers as a whole

LIVING ON CREDIT

Although many Americans appeared prosperous during the 1920s, in fact they were living beyond their means. They often bought goods on credit-an arrangement in which consumers agreed to buy now and pay later for purchases, often on an installment plan (usually in monthly payments) that included interest charges

By making credit easily available, businesses encouraged Americans to pile up a large consumer debt. Many people then had trouble paying off their growing debts. Faced with debt, consumers cut back on spending.

UNEVEN DISTRIBUTION OF INCOME

Consumers also spent less because their incomes were not rising fast enough. During the 1920s, nearly half the nation's families earned less than $1,500 per year, then considered the minimum amount needed for a decent standard of living. Even families earning twice that much could not afford many of the household products that manufacturers produced. Economists estimate that the average man or woman bought a new outfit of clothes only once a year. Scarcely half the homes in many cities had electric lights or a furnace for heat. Only one city home in ten had an electric refrigerator In contrast, rich Americans did very well.

This unequal distribution of income meant that most Americans could not participate fully in the economic advances of the 1920s. Many people did not have the money to consume the flood of goods that factories produced. The prosperity of the era rested on a fragile foundation.

Falling farm income resulted in _____ demand for the products of other industries in the country.

a.	more	c.	less
b.	the same	d.	farm income and industry do not effect each other

10.

When people have too much debt, how does it effect business?

a.	helps business because people keep buying things on credit	c.	make people go on spending sprees
b.	helps business because people begin to pay for things with cash	d.	hurts business because people stop buying things

11.

In the 20s income was spread pretty evenly through the population

true

false

The Stock Market Comes Tumbling Down

By 1929, some economists were warning of serious weaknesses in the economy. Most Americans, however, remained unaware of these problems and continued to have confidence in the nation's economic health . Those who could afford to invest in the stock market did so in increasing numbers.

DREAMS OF RICHES IN THE STOCK MARKET

As stock prices rose, several problems became evident. More and more investors were engaging in speculation-that is, they bought stocks and bonds on the chance that they might make a quick or a large profit, ignoring the risks . Their unrestrained buying and selling fueled the market's upward spiral . When stock prices rise it is called a “bull market.” As prices rose, wealth was generated on paper, but it bore little relation to the real worth of companies or the goods that they produced.

Furthermore, many investors began buying on margin-paying a small percentage of a stock's price as a down payment and borrowing the rest. With stockbrokers willing to lend buyers up to 75 percent of a stock's purchase price, buying on margin became the rule . This system worked as long as prices continued to rise, since investors could sell their inflated stocks to make a profit and pay off their debt. If stocks declined, however, there was no way to pay off the loan

BLACK TUESDAY

In early September 1929, stock prices peaked and began to decline. On October 29-known as Black Tuesday-the bottom fell out of the market . People and corporations alike frantically tried to sell their stocks before prices plunged even lower. When stock prices fall it is called a “bear” market. The individual investors who had bought stocks on credit acquired huge debts as the prices plummeted. Other investors, who had put most of their savings into the market, lost huge portions of their nest eggs. By mid-November, investors had lost $30 billion, an amount equal to American spending in World War I. The stock market bubble had finally burst

12.

During the 20’s the stock market was a _____ market

a.	bear	c.	wet
b.	bull	d.	black

13.

Much of the wealth generated in the stock market during the 20s only existed on paper and was not real wealth

a.	true	c.	true but only for a small number of investors
b.	false

14.

Buying on margin is a good thing because you do not have to repay the price of stocks when the value of the stocks goes down

true

false

15.

What happened on Black Tuesday?

a.	the stock market crashed and stock prices fell	c.	a bear market suddenly turned into a bull market
b.	the stock market crashed and stock prices rose	d.	the market closed to keep people from withdrawing their investments

CAUSES OF THE GREAT DEPRESSION

The stock market crash signaled the beginning of the Great Depression-the period from 1929 to 1941, in which the economy was in severe decline and millions of people were out of work. The crash alone did not cause the Great Depression, but it hastened the collapse of the economy and made the Depression more severe .

Although historians and economists differ on the main causes of the Great Depression, most cite a common set of factors. Among these causes were the following

1- an old and decaying industrial base-outmoded equipment made some industries less competitive

2- a crisis in the farm sector-farmers produced more than they were able to sell, especially after the end of World War I and the disappearance of markets that the war had opened to them

3- the availability of easy credit-many people went into debt by buying goods on the installment plan

4- an unequal distribution of income-there was too little money in the hands of working people, who were the vast majority of consumers .

16.

The period from 1929 to 1941, in which the economy was in severe decline and millions of people were out of work is called

a.	the bear market	c.	the Great Depression
b.	the bull market	d.	the Square Deal

17.

One of the causes of the Depression was the fact that America’s factories were new which caused too much production.

true

false

18.

The crisis on the farms had little to do with the Depression because very few people lived on the farms and what happened on the farms had little impact on the cities.

true

false

Financial Collapse

After the crash, many Americans panicked and withdrew their money from banks, forcing some banks to close . Many banks could not cover their customers' withdrawals, because the banks had invested and lost money in the stock market, just as individuals had. As a result, 659 banks shut their doors in 1929. By 1933, around 6,000 banks-one-fourth of the nation's total-had failed . Because the federal government did not protect or insure bank accounts, these bank failures wiped out around 9 million individual savings accounts. People who went to the bank to retrieve their savings came home with nothing.

As the economy plunged into a tailspin, millions of workers lost their jobs. Unemployment leaped from 3 percent of the work force (1 .6 million workers) in 1929 to 25 percent in 1933 (13 million workers) . One out of every four workers was without a job. The workers who managed to hold on to their jobs often had to accept pay cuts and reduced hours.

Not everyone fared so badly, of course. In the months before the crash, some stock market speculators had begun to unload their stocks and take the profits. Bernard Baruch was one who did so . Joseph P. Kennedy, the father of future president John F. Kennedy, was another. Most people, however, were not so lucky or shrewd.

19.

After the fall of the stock market people

a.	were happy their money was in state banks rather than federal banks	c.	cashed in their bank insurance to regain their money
b.	panicked and tried to get their money out of the banks	d.	took their cash out of the market and deposited it in the banks

20.

By 1933, what percent of the population was out of work?

a.	33%	c.	50%
b.	3%	d.	25%

21.

Like most Americans, Joseph Kennedy lost everything in the Depression.

true

false

WORLDWIDE SHOCK WAVES

The United States was not the only country gripped by the Great Depression. Much of Europe, for example, had suffered throughout the 1920s. European countries trying to recover from the ravages of World War I faced high debt payments. In addition, Germany had to pay war reparations-payments to compensate the Allies for the damage Germany had caused. The Great Depression compounded these problems by limiting America's ability to import European goods. This made it difficult to sell American farm products and manufactured goods abroad

In 1930, Congress made a bad situation worse by passing the Hawley-Smoot Tariff Act, which established the highest protective tariff in United States history.

This act-designed to help American farmers and manufacturers by protecting their products from foreign competition-had the opposite effect . By reducing the flow of goods into the United States, the tariff prevented other countries from earning American currency to buy American exports

Many countries retaliated by raising their own tariffs . Within a few years, world trade had fallen more than 40 percent-a severe reduction in overall economic activity

22.

The Great Depression was a _____ phenomena.

a.	localized	c.	worldwide
b.	U.S.	d.	North and South American

23.

The Hawley-Smoot Tariff Act, _____ the American economy by protecting American industries and jobs.

a.	hurt	c.	little effect on
b.	helped	d.	increased exports to

24.

The high tariffs of the Hawley-Smoot Tariff Act, _____ world trade

a.	increased	c.	had little effect on
b.	decreased

25.

What happened in the 1920s had little effect on the events of the 1930s

true

false

Matching

a.	exhausted	n.	Federal Home Loan Bank Act
b.	the Great Plains	o.	mortgage
c.	Dust Bowl	p.	foreclosure
d.	Herbert Hoover	q.	Alfred E Smith
e.	soup kitchen	r.	public works
f.	Bonus Army	s.	Boulder Dam
g.	direct relief	t.	Capitol
h.	economic cycles	u.	credit
i.	bread line	v.	diet
j.	Hawley-Smoot Act	w.	drought
k.	DOw Jones Industrial Average	x.	speculation
l.	price support	y.	Reconstruction Finance Corporation
m.	buying on margin	z.	shantytown

26.

A long period of unusually low rainfall

27.

The payments made to pay back the loan used to buy a house or land

28.

Short-term loans to buy goodswith promises to pay later

29.

31st president

30.

Law that keeps prices above a set level

31.

Periods of good times, or prosperity, alternating with periods of economic hard times

32.

Law that raised taxes on imports and worsened the Depression

33.

Buying stock by paying only a portion of the full cost up-front with promises to pay the rest later

34.

Unemployed World War I veterans who marched to Washington to demand their war bonuses

35.

Money or food given directly from the government to the needy

36.

Democratic presidential candidate in 1928

37.

Dam on the Colorado River built during the Depression to create jobs

38.

Investments in high-risk ventures

39.

Used up, worn out

40.

The food people eat

41.

The taking of mortgaged property by the lender because the borrower cannot make the payments on the loan

42.

A neighborhood where people live in shacks

43.

Projects run by the government

44.

Agency established in 1932 to provide emergency relief to large businesses, insurance companies, and banks

45.

Area of the Great Plains made worthless for farming by drought and dust storms in the 1930s

46.

Index of stock prices of selected companies

47.

Place where free food is served to the needy

48.

Law passed in 1931 to reduce mortgage rates to save farmers from foreclosure

49.

A line of people waiting for free food

50.

A large flat area of the west-central United States originally covered by a type of grass that does not need much rain and that has strong roots which hold the soil in place

51.

The building in Washington, D.C., where Congress meets