key term - Stock market crash

Definition

A stock market crash refers to a sudden and severe drop in the value of stocks, leading to widespread financial panic and economic turmoil. The most infamous example occurred in October 1929, marking the beginning of the Great Depression, a period characterized by massive unemployment, bank failures, and a drastic decline in economic activity. This event not only devastated individual investors but also triggered a chain reaction that negatively affected businesses and the overall economy.

5 Must Know Facts For Your Next Test

1. The stock market crash of 1929 was preceded by a decade of economic prosperity known as the Roaring Twenties, where stock prices soared to unprecedented heights.
2. Many investors speculated heavily on margin, meaning they borrowed money to buy stocks, which exacerbated their losses when the market collapsed.
3. The initial crash on October 24, 1929, known as Black Thursday, saw millions of shares traded and significant losses before the more devastating Black Tuesday occurred just days later.
4. The aftermath of the crash contributed to bank failures as institutions that had invested heavily in stocks faced insolvency, leading to loss of savings for many individuals.
5. The stock market crash highlighted weaknesses in the U.S. economy, including overproduction, uneven wealth distribution, and a lack of regulation in financial markets.

Review Questions

• How did the stock market crash contribute to the onset of the Great Depression?
  • The stock market crash significantly contributed to the onset of the Great Depression by eroding public confidence in financial institutions and leading to widespread panic. As stock values plummeted, many individuals lost their life savings, causing a drastic reduction in consumer spending. This decline in demand further exacerbated economic troubles, leading businesses to cut production and lay off workers, creating a vicious cycle of unemployment and declining economic activity.
• Analyze the social impacts of the stock market crash on American society during the Great Depression.
  • The social impacts of the stock market crash were profound and far-reaching. Many families faced dire financial straits as unemployment soared, leading to widespread poverty and homelessness. The psychological effects were also significant; individuals struggled with feelings of despair and hopelessness as their dreams for a better life were dashed. Communities banded together for support, but the overall atmosphere was one of uncertainty and fear regarding the future.
• Evaluate how government responses to the stock market crash reflected changing attitudes toward economic intervention.
  • Government responses to the stock market crash marked a pivotal shift in attitudes toward economic intervention. Initially characterized by minimal government involvement, the severity of the Great Depression prompted significant policy changes. Programs such as Franklin D. Roosevelt's New Deal introduced a range of social welfare initiatives and regulatory measures aimed at stabilizing the economy and providing relief to struggling citizens. This shift signified a growing recognition that government action was necessary to mitigate economic crises and protect vulnerable populations.

Related terms

Great Depression:

A severe worldwide economic downturn that lasted from 1929 until the late 1930s, marked by high unemployment rates, widespread poverty, and significant declines in industrial production.

Black Tuesday:

The date, October 29, 1929, when stock prices collapsed dramatically on the New York Stock Exchange, leading to a massive sell-off and marking the start of the Great Depression.

Economic Panic: A period of intense fear or anxiety among investors and consumers, often leading to a rapid withdrawal of funds from banks and financial markets.