The+Crash+of+the+Stock+Market

= The Crash of the Stock Market = = October 29, 1929 =

There were several things that lead to the crash of the stock market, //Black Tuesday//, on October 29,1929.

 * __Speculation:__ People bought stocks and land (Florida) thinking that their value would increase and they would be able to sell at a profit.


 * __installment payments (installment buying):__ people used this new form of credit to by the new modern goods. Instead of buying items with cash they would agree to make small monthly payments to pay for their purchase. This type of credit lead to problems when people could not make the payments because of financial problems (reduced wages/loss of job) or over extending (taking on too much debt). During the 1920s consumer debt increased dramatically. See the GRAPH on page 730 of the text book.


 * __Buying on the margin__: making a small down payment and borrowing the rest to buy stocks. This worked only if the price of the stock you bought went up and you could sell the stock using the profit to payoff the money you borrowed.

It is the prosperity of the 1920s that lead to the crash of the stock market. This is called Boom to Bust. In the world of economics it is believed that there is always a bust following a boom.