Reasons for the Great Depression

Question 1

List of factors

Answer 1

Unstable banking system
Republican policies of the 20’s
Overproduction of goods
Wall Street Crash

Question 2

Unstable banking system

Answer 2

• Banks in the US were unregulated following WWI, mostly local, smaller banks
• These banks act on their own interests rather than the interests of the nation, they would try to make a profit
• Banks used their profits to invest in stocks, when stocks plummeted, banks were forced to close
• People’s life savings were gone, those employed in banks lost their livelihoods, there was no banking system for the economy to rely on
• However it was the government who encouraged the use of the flawed loan system, so they are partly to blame.

Question 3

Republican policies of the 20’s

Answer 3

• The government determined to return to normalcy after WWI, adopted a laissez-faire policy.
• Led to businesses being entirely unregulated, allowing them to operate out-with government regulations.
• Government reduced tax for consumers, encouraging them to buy more products, gave out credit for businesses very easily.
• The rich benefitted greatly from this but the poor did not - this caused great problems when the depression hit. Credit policies meant the economy was built on very weak foundations.
• However, the government was simply running the country how they were used to - they had no reason to suspect this would lead to a depression.

Question 4

Overproduction of goods

Answer 4

• Technological advances meant that consumer goods were becoming more accessible - the government encouraged credit payments, most goods were sold this way and the industries saw massive booms
• However, once consumers had bought a product, they were unlikely to splash out to buy the latest version - but production failed to slow to accompany them.
• This overproduction and underconsumption meant that factories would have to close to accommodate the decrease in production.
• However, the government did not have any plan in place to re-employ workers who had been laid off, there were no alternatives in the job market.
• However, some businesses (such as advertising) were unaffected and actually thrived during this ordeal.

Question 5

Wall Street Crash

Answer 5

• Towards the end of the 1920’s, confidence in the stock market decreased and people were quick to sell their shares at what they thought would be the highest, set off a chain reaction.
• Led the value of stocks to plummet, businesses lost billions.
• Many businesses, banks in particular, were forced to close.
• It had been reported that around 1/3 of the population became unemployed as a result, and the wages of those still in work decreased significantly.
• However, the Wall Street Crash could be seen as a reaction to the problem rather than the cause of it - other policies were to blame for what lead to the crash.