Lessons from History Stock Market Crashes

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					Lessons from History:
Stock Market Crashes

Presenter: Dr. Sue Lynn Sasser
Source: Learning, Earning and Investing
       published by the National Council on Economic Education
• Causes and effects of stock market
  crash in 1929
• Causes and effects of stock market
  crash in 1987
• The role of the Federal Reserve and
  monetary policy
• Develop and present posters about the
• Compare the two crashes
• Explain the Fed’s role and how is
  contributed to different outcomes in
  the two crashes
• Copies of the information sheets
• 8 large pieces of construction paper or
  butcher paper
• 3 or 4 markers for each group of
What is a stock market crash?
• Stock prices drop A LOT!
• Price drops are sudden and
• Crashes create panic
• People lose money they have invested
  in stocks
U.S. Stock Market Crashes
• October 1929   • October 1987
• How were the causes of the 1929 crash
  similar to the causes of the 1987
  – Why did many people sell their stock at
    the same time?
• What happened after the 1929
  crash, compared to what happened
  after the 1987 crash?
• How did the Fed react to the two
• Given what happened in both crashes,
  do you think there will be additional
  crashes in the future?
An economic perspective
• Economists agree that supply and
  demand forces may lead to future
  crashes because stock market prices
  are based, in great part, on
  – When investors believe stock prices will
    increase, it increases the demand for
– This increased demand continues until
  stock prices become too high for the
  value of the related corporation.
– “Over valued” stocks create market
  situations called “speculative bubbles” –
  and bubbles can burst!
– Bubbles burst when investors expect
  prices to stop increasing.
– “Over valued” stock prices result in
  excess supply of stocks, which causes
  prices to fall. The greater the perceived
  over value, the greater the fall.
– When investors decide to leave the market
  at the same time, little can be done to
  prevent the markets from falling.
• How did Fed policy help create the
  Great Depression after the stock
  market crash in 1929?
• How did Fed policy help prevent a
  recession after the stock market crash
  of 1987?
For more information on this
• Go to http://lei.ncee.net

• Or, attend a Learning, Earning and
  Investing workshop
   – www.econisok.org
Contact information
Dr. Sue Lynn Sasser
Executive Director
Oklahoma Council on Economic Education
100 N. University Drive, Box 103
Edmond, OK 73034