BOOM - reasons for the boom

Question 1

What is an ‘economic boom’?

Answer 1

A time when the vast majority of businesses are doing well, sales are high, wages increase and unemployment is low

Question 2

How did WW1 contribute to the boom?

Answer 2

• the USA stayed out of the war at first, following a policy of isolationism. This allowed the USA to prosper financially; American banks loaned money to Britain and its allies to buy foods weapons and equipment, mainly from the USA. This created many jobs for Americans
• the war disrupted the economic growth of the countries that were fighting. By the end of the war the USA led the world in the production of medicines, dyes and other materials, and many basic goods
• nations such as France, Germany, Russia and Britain were exhausted by the end of the war. Skilled American inventors and business people were now able to exploit the USA’s resources and make fortunes from them
• America was the only major power without huge wartime debts

Question 3

How did the consumer society contribute to the boom?

Answer 3

• the number of US homes with electricity grew rapidly in the 1920s, from 15% in 1916 to nearly 70% in 1927
• this meant that people could buy ultra-modern electric-powered ‘gadgets’ such as vacuum cleaners, gramophones, radios, telephones and refrigerators
• huge demand for these goods created jobs in the factories that made them

Question 4

How did the Republican government contribute to the boom?

Answer 4

To help American businesses, the Republican government introduced several new policies:

• the Fordney-McCumber Tariff put high taxes on imports, making foreign goods more expensive. As a result, Americans bought more US-made goods, creating more jobs for Americans
• the Republican government cut taxes paid by rich people (and their companies). As a result, the rich invested more money to start more businesses, creating more jobs
• taxes were low in general, so people had more money to spend
• the Republican’s ‘laissez-faire’ approach meant that businesses were left alone to get on with creating wealth

Question 5

How did growing industries and mass production contribute to the boom?

Answer 5

• the growth of the motor industry boosted the US economy. Car-making used large quantities of US steel, leather, rubber and glass. More jobs were created in these industries as more cars were made
• many American businesses used the mass production methods developed by Henry Ford in the motor industry. As companies got quicker at manufacturing, their goods became cheaper

Question 6

How did new ways to buy and sell contribute to the boom?

Answer 6

• colourful billboards, newspapers and magazines urged people to buy the latest gadgets and keep up with their neighbours. This led to a boost in sales
• catalogues made buying easy, and the goods could be delivered to your door
• ‘Buy now, pay later’ schemes (sometimes called ‘hire purchase plans’) meant buyers could pay for goods in small instalments over a fixed period. Six out of ten cars were bought this way

Question 7

What was the cycle of prosperity?

Answer 7

Mass production means that goods can be made a lot more cheaply, more people can afford to buy goods, more people are employed to make these goods, people spend their wages on more goods, advertising persuades people to buy even more goods, hire purchase plans help people buy goods