Stock market crash of 1929

Definition

The stock market crash of 1929 was a major financial collapse that marked the beginning of the Great Depression, characterized by a dramatic fall in stock prices in the United States. The crash not only signaled the end of the economic boom of the 1920s but also led to widespread unemployment, business failures, and a severe economic downturn, profoundly impacting American society and prompting a series of reforms under the New Deal.

5 Must Know Facts For Your Next Test

1. The stock market crash began on October 24, 1929, known as Black Thursday, when panic selling caused a significant drop in stock prices.
2. The crash wiped out millions of investors and led to a loss of over $14 billion in one day, which was a staggering amount at that time.
3. The aftermath of the crash contributed to bank failures, as banks had heavily invested in stocks and were unable to recover their losses.
4. The economic effects of the crash resulted in widespread unemployment, reaching about 25% by 1933 as businesses closed or reduced their workforce.
5. In response to the crisis, the government began implementing reforms through the New Deal to stabilize the economy and provide relief to those affected.

Review Questions

• How did the stock market crash of 1929 contribute to the onset of the Great Depression?
  • The stock market crash of 1929 played a critical role in triggering the Great Depression by instilling fear and panic among investors and consumers. As stock prices plummeted, many people lost their life savings and confidence in financial institutions. This sudden loss of wealth led to decreased consumer spending and investment, which caused businesses to cut production and lay off workers, creating a vicious cycle that deepened the economic crisis.
• Evaluate the effectiveness of New Deal policies in addressing the economic challenges that arose from the stock market crash.
  • New Deal policies were designed to address the widespread economic challenges that followed the stock market crash by providing relief, recovery, and reform. Programs such as Social Security and unemployment insurance aimed to provide immediate assistance to those affected by job loss. While these policies helped stabilize the economy and restore some confidence among Americans, it wasn't until World War II that full economic recovery was achieved.
• Analyze the long-term implications of the stock market crash of 1929 on American financial regulations and economic policies.
  • The stock market crash of 1929 had lasting implications for American financial regulations and economic policies, leading to significant reforms aimed at preventing future crashes. The Securities Exchange Act of 1934 established regulations for securities markets and created the Securities and Exchange Commission (SEC) to oversee stock trading practices. These changes helped increase transparency and protect investors from fraudulent practices, fundamentally altering how financial markets operated in the United States.

Related terms

Great Depression:

A severe worldwide economic downturn that lasted from 1929 to the late 1930s, marked by high unemployment, poverty, and widespread economic hardship.

New Deal:

A series of programs and reforms introduced by President Franklin D. Roosevelt in response to the Great Depression, aimed at recovery and relief for Americans.

Black Tuesday: The day, October 29, 1929, when the stock market crashed most significantly, leading to a massive sell-off of stocks and financial panic.