(Causes of the crash) Problems in the economy

Question 1

What were the 4 significant problems in the economy that led to the Wall Street Crash?

Answer 1

Overproduction
Land speculation
The bull market
Weaknesses of the banking system

Question 2

Overproduction - what had increased despite a drop in consumer demand?

Answer 2

Manufacturing

Question 3

Overproduction - manufacturing increased, despite what happening?

Answer 3

A drop in consumer demand

Question 4

Overproduction - what happened as a result of manufacturing increasing, despite a drop in consumer demand?

Answer 4

Workers were laid off as businesses failed to sell products.

Question 5

Overproduction - workers were laid off as businesses failed to sell products.
Give evidence to illustrate the effect of this.

Answer 5

By 1929, 80% of Americans were living close to subsistence.

Question 6

Land speculation - what happened in 1926?

Answer 6

The Florida Land Boom crashed.

Question 7

Land speculation - in 1926, the Florida Land Boom crashed.

What happened as a result?

Answer 7

Investors lost millions of dollars.

Question 8

The bull market - what was taking place on the stock exchange?

Answer 8

Speculation and get-rich-quick schemes

Question 9

The bull market - what is the context of the stock market?

Answer 9

Limited regulation

Question 10

The bull market - what did limited regulation of the stock market lead to?

Answer 10

Insider dealing

Question 11

The bull market - how could shares be bought?

Answer 11

On credit

Question 12

Weaknesses of the banking system - the banking system was ________ and _________.

Answer 12

outdated and unregulated

Question 13

Weaknesses of the banking system - how many Federal Reserve Banks were there?
How many small local banks were there?

Answer 13

12

30,000

Question 14

Weaknesses of the banking system - what is often an indicator of the health of the economy as a whole?

Answer 14

The health of the construction industry.

Question 15

Weaknesses of the banking system - the health of the construction industry is often an indicator of the health of the economy as a whole.
Put this in the context of 1929.

Answer 15

By 1929, it was in recession.

Question 16

What were three underlying problems in the economy that were factors to the Wall Street Crash?

Answer 16

The banking system.

The federal reserve board.

Get rich quick schemes (Florida land boom and The bull market).

Question 17

Weaknesses of the banking system - how did the banking system create underlying problems in the economy?

(regulate, small, speculation)

Answer 17

Regulated themselves due government laissez-faire.

By 1920s, there was 30,000 banks and most were too small to deal with economic problems so people lost savings.

Stock market speculation

Question 18

The federal reserve board - how did the federal reserve board create underlying problems in the economy?

(regulations, rates)

Answer 18

The govt didn’t have to interfere with regulations.

The govt favoured low interest rates.

Question 19

Land speculation - how did get-rich-quick schemes, particularly the Florida land boom, create underlying problems in the economy?

(appealing, sustain, hurricanes)

Answer 19

Florida was appealing to middle-class buyers due to weather & climate.
Could only be sustained with more buyers than sellers.
Collapsed in 1926 when hurricanes left 50,000 people homeless.

Question 20

Get-rich-quick schemes - how did get-rich-quick schemes, particularly stock market speculation, create underlying problems in the economy?

(sold, artificial, example)

Answer 20

People purchased stocks and shares and if the prices rose, shares were sold.

Dishonest brokers artificially put the values of the shares up and then withdrew investment, leaving companies without investors.

A famous example = Charles Ponsi. He was arrested and sent to jail.

Question 21

International cycle of debt - how did loan repayments cause an international cycle of debt?

(Europe, import/export, trend)

Answer 21

USA was dependent on Europe repaying WW1 loans.

Fordney-McCumber Tariff 1922 made import/export price too high for European countries to ship the money and repayments back.

European countries raised their own tariffs because it was becoming a trend, resulting in less trading.

Question 22

International cycle of debt - how did the Dawes Plan cause an international cycle of debt?

(loss)

Answer 22

USA gave Germany $2.5 billion which would be payed back but it ended up being a loss.

Question 23

Government policy - how did government policy cause economic problems linked to prosperity?

(welfare)

Answer 23

There was little welfare under the Republican government so people suffered when the crash happened.

Question 24

How did the stability of employment during prosperity cause economic problems linked to prosperity?

(union, goods, fail)

Answer 24

Employees couldn’t join a trade union under the Yellow Dog Contract.

Employment became unstable due to fluctuating demand for goods.

For every 4 successful businesses, 3 failed.

Question 25

What was the ‘Yellow Dog Contract’?

Answer 25

A contract in which employers operated under which meant employees could not join a trade union.

Question 26

How did overproduction cause economic problems linked to prosperity?

(made, subsistence, motor)

Answer 26

More things were being made than bought. This was because:

Unemployment rose - 80% living close to subsistence.
1929, 165 families surveyed - 72% unemployed that year, 43% for over a month.

The number of motor vehicle companies fell by 108 to 44, 1920-1930.

Question 27

How did regional differences cause an uneven distribution of wealth in 1929?

Answer 27

North East $921 average yearly salary

Far West: $881

South East: $412

Question 28

Get-rich-quick schemes - what are get-rich-quick schemes?

Answer 28

People were motivated by making quick profits from speculative ventures.
The ability to buy investments and credit made them more accessible.

Question 29

Land speculation - why were people motivated to buy land in Florida?

Answer 29

They bought land there in the hope of making a profit as it was developed and properties were sold.

Question 30

Land speculation - what is a speculative venture?

Answer 30

More and more people bought and sold shares very quickly to make a quick profit.
This worsened the economy.

Question 31

Get-rich-quick schemes - what two schemes (get-rich-quick) led to problems in the economy?

Answer 31

Stock Market Speculation

The Florida Land Boom

Question 32

Weaknesses of the banking system - how many banks were closed between 1929 - 1933?

Answer 32

10,000

Question 33

When were 10,000 banks closed?

Answer 33

1929 - 1933