Boom and Bust in America Flashcards
What did the increase in the GNP of America lead to
The increase of America’s GNP lead to an increase in the salary of Americans. This would cause mass-consumerism, as people had more disposable income
What are the main reasons for the economic boom in America
The main reasons for the boom in America were advancements in technology, the banking industry and Republican policies, such as low taxes, rugged individualism, tariffs and hire-purchase
How did advancements in technology lead to the boom
Advancements in technology lead to the boom, as they inducted new construction methods that helped a lot in the making of products. One example is the assembly line. It helped produce cars quicker and cheaper than ever before. Specifically, it reduced production time from 12 hours to just 1.5. This allowed mass-production to occur. Mass-production lead to cars being more affordable for everyone to buy, resulting in mass-consumerism that boosted the economy
What is an assembly line
An assembly line is a construction line in which every worker focuses on doing just one job rather than working on the whole car
How did the banking industry help create the boom
During WW1, banks lent out money to the Allies and were paid back with interest, meaning that they made profit from each loan. This made banks eager to loan out money after the war ended. Therefore, getting a loan to start your own business was really easy. This boosted the economy, as more businesses meant more available jobs and products on the market
What is “rugged individualism”
Rugged individualism is the belief that everyone can succeed on their own, without the help of the government
What is mass-production
Mass-production is the production of goods in large quantities
What are tariffs
Tariffs are taxes set on foreign imports with the purpose of making them more expensive than American goods
How did tariffs lead to the boom
Tariffs lead to the boom because now that foreign products were more expensive than American ones, people started buying cheaper American products instead of foreign imports, increasing the profits of American companies
How did low taxes help create the boom
Low taxes helped in the creation of the boom as they allowed businesses to make more profit which allowed them to expand, hiring more people and bringing more profit to the government. Also, low taxes gave American more disposable income that was used on leisure activities and consumer goods
What is hire purchase
Hire purchase allowed people to buy products on credit, meaning that they paid for the goods in installments rather than paying the whole amount upfront
How did the car industry help create the boom
The car industry helped create the boom throughout its effect on other industries. Industries helped the petrol, rubber, glass and metal industries, as this materials were used in the making of a car. Also, the construction industry benefited a lot, as it built roads for the cars to drive on, motels, and houses in the suburbs. This created a cycle of prosperity from which many industries profited
Write down the causes of the Bust
Overproduction & underconsumption in agriculture/consumer goods, Protectionism, Laissez-Faire, Debt increasing, Speculation on the stock market and Loss of confidence in the price of shares
How did overproduction and underconsumption in agriculture lead to the crash
During the late 1920s demand for grain fell in America due to prohibition and tastes changing. This along with mass-production led to the decrease of the price of grain, meaning that farmers made less profit from each sale. This resulted in many farmers to fall into debt and lose their farms
How did overproduction and underconsumption in consumer goods lead to the crash
During the late 1920s, many goods were left unsold in the USA, as people who could afford products like cars or gadgets had already bought them. This led to many workers losing their jobs, as companies needed to produce less products
How did protectionism lead to the crash
In 1922, America set tariffs on European imports to make them more expensive than American ones. This backfired when Europe did the same, because when America needed to sell its surplus goods, they were not able to trade in Europe
How did laissez-faire lead to the crash
With the policy of laissez-faire, banks were left unregulated. This meant that there were many small banks that were unstable and couldn’t cope with the runs on the bank made when the market collapsed. This lead to many banks going bankrupt and people losing the money they had saved
How did increasing debt lead to the crash
As Americans bought goods on credit, they owed money to various shops. When they failed to pay the money they owed, companies went into financial difficulties, as they lost a lot of money
How did speculation on the stock market lead to the crash
During the 1920s more and more people started to invest in stocks. This was because of low interest rates that allowed people to make huge profits without any hard work. This resulted in a buying frenzy, that created a bubble economy and pushed up the value of stocks to enormous values. For example, radio stocks increased by 500% in just a year and a half. Banks also invested savers’ money into shares for further profit. Society at that time was heavily dependent on stocks.
How did the loss of confidence in stocks lead to the crash
In September 1929, some investors lost confidence in their shares as they saw how the prices of stocks were over-valued and how the economy was slowing down, so they decided to sell. This caused the prices to fall, creating panic amongst investors, who rushed to sell their shares. On October 24, 13.8 million shares were sold, making the prices plummet and the stock market to crumble. 5 days later, a total of 16 million shares were sold for pennies, causing people who had invested in shares to lose all their savings
