(1b) Causes of the crash

Question 1

Wall Street Crash (October 1929)

Answer 1

• 29th October 1929 (Black Tuesday): New York stock exchange crashed.
• By mid November, $30 billion had been lost.

Question 2

Problems in the Economy:

Overproduction

Answer 2

• Manufacturing increased even though there was a drop in demand - workers were laid off because businesses couldn’t sell products (operating on a loss).
• By 1929: 80% of Americans were living close to subsitence.

Question 3

Problems in the Economy:

Land speculation

Answer 3

• The Florida land boom crashed in 1926 (partly due to a hurricane); investors lost millions from it.
• New York investors bought homes that hadn’t been built in Florida for profit.
• The population of Florida had gone up by 300,000.

Question 4

Problems in the Economy:

The bull market

Answer 4

• Speculation and get-rich-quick schemes on the stock exchange
• Limited regulation of stock market led to insider dealing
• Shares could be bought on credit

Question 5

Problems in the Economy:

Weaknesses of the banking system

Answer 5

• Outdated and unregulated.
• Federal Reserve system - 12 Federal Reserve banks and 30,000 local small banks.
• Get-rich-quick schemes were unstable.
• Small banks ran out of funds - people lost their savings.

Question 6

Problems in the Economy:

Construction industry

Answer 6

The construction industry was in recession by the late 1920s.
A good way of judging the health of the economy as a whole.