Stock market crash of 1929

Definition

The stock market crash of 1929 was a major financial collapse that occurred in late October, marking the beginning of the Great Depression in the United States and having profound global repercussions. This event was characterized by a rapid decline in stock prices, which led to widespread panic selling and a loss of investor confidence, resulting in economic turmoil and a severe downturn in various economies around the world.

5 Must Know Facts For Your Next Test

1. The stock market crash began on October 24, 1929, known as Black Thursday, when investors began to panic and sell their shares en masse.
2. By October 29, also known as Black Tuesday, the stock market had lost nearly $14 billion in value in a single day, leading to widespread financial ruin for many investors.
3. The crash wiped out thousands of investors and severely damaged banks and businesses that had invested heavily in the stock market.
4. The psychological impact of the crash contributed to a decrease in consumer spending and investment, deepening the economic downturn that followed.
5. The global spread of the Depression was fueled by interconnected economies and trade relationships, leading to a worldwide decline in industrial output and rising unemployment rates.

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 crucial role in triggering the Great Depression by undermining investor confidence and leading to massive losses that impacted banks and businesses. As people lost their savings and investments overnight, consumer spending plummeted. This decline in demand caused businesses to cut back on production and lay off workers, creating a vicious cycle of unemployment and economic contraction that defined the Great Depression.
• In what ways did speculation contribute to the volatility of the stock market prior to the crash?
  • Speculation drove stock prices to unsustainable levels as investors bought shares with the hope that prices would continue to rise without regard for the actual financial health of companies. This behavior inflated stock values artificially and created an environment ripe for a collapse when reality set in. When prices began to drop, panic ensued as speculators rushed to sell their stocks, leading to the rapid decline seen during the crash.
• Evaluate the long-term economic impacts of the stock market crash of 1929 on global economies during the following decade.
  • The long-term economic impacts of the stock market crash of 1929 were profound and far-reaching. The initial shock led to bank failures and business bankruptcies, severely disrupting financial systems worldwide. Many countries experienced prolonged periods of high unemployment and low industrial production as they struggled with deflationary pressures and decreased trade. This situation not only affected economies but also fueled political instability and contributed to social unrest, setting the stage for significant changes in government policies and international relations throughout the 1930s.

Related terms

Great Depression: A severe worldwide economic downturn that lasted from 1929 to the late 1930s, characterized by high unemployment, deflation, and significant declines in industrial production and international trade.

Black Tuesday: The day on October 29, 1929, when the stock market crashed dramatically, leading to a significant drop in stock prices and triggering widespread panic among investors.

speculation: The practice of buying stocks or other assets with the expectation that their prices will rise, often without a solid basis in fundamental financial performance, which contributed to the market's volatility before the crash.