The Roaring 20s, Wall Street Crash

Question 1

What were the 4 underlying weaknesses of the US economy during the 1920s

Answer 1

Overproduction, Mal-distribution of wealth, Tariff policies, Financial speculation

Question 2

Why was overproduction a problem for the US economy?

Answer 2

Once Americans had bought consumer goods such as cars and radios the demand for these goods fell. Therefore the factories had to produce less goods and they had to sack workers. Therefore fewer people could afford to buy the consumer goods

Question 3

Why was mal-distribution of wealth a problem for the US economy?

Answer 3

Over half the US population lived below the poverty line and therefore could not afford to buy consumer goods.

Question 4

Why was the tariff policy a problem for the US economy

Answer 4

If half of all Americans could not afford to buy consumer goods and demand for these goods fell once Americans who had money had bought the consumer goods American business should have been able to sell abroad. However the tariffs which foreign governments put on US goods in response to US tariffs stopped US business from selling abroad.

Question 5

Why was financial speculation a problem for the US economy?

Answer 5

Shares were bought ‘on the margin’ which means that people paid for 10% of the cost of shares with their own money and borrowed the remaining 90% from banks. These speculators believed that the price of shares would rise and they would then be able to pay the banks back. Speculation was not a problem while the price of shares kept going up but as soon as share prices started to fall the banks would be in serious trouble.

Question 6

When and why did share prices start to fall?

Answer 6

During 1928 share prices did not rise as quickly as they had in previous years. Some investors started to sell their shares which led to other investors noticing the selling and led them to sell their shares before the bubble burst. This led to a fall in prices.

Question 7

What date was the start of the Wall Street Crash?

Answer 7

Thursday 24th October

Question 8

What happened on ‘Black Thursday’, the first day of the Wall Street Crash

Answer 8

13 million shares were sold, leading to a huge fall in share prices

Question 9

What did the banks do after Black Thursday to try to stop the Crash

Answer 9

Bankers spent $250 million buying shares to encourage people to buy rather than sell. Share prices stopped falling.

Question 10

What happened on Monday 28th October 1929

Answer 10

16 million shares were sold for any price they could get. $8 billion was lost during this one day.

Question 11

When did the fall in share prices end?

Answer 11

By mid November the share prices had ‘bottomed out’

Question 12

What was the effect on the banks of the Wall Street Crash?

Answer 12

People rushed to withdraw their savings leading a run on the banks (people rushed to withdraw their savings). The banks ran out of money and many collapsed.

Question 13

How many banks collapsed in 1929?

Answer 13

700

Question 14

What was the effect on companies of the Wall Street Crash?

Answer 14

The banks demanded that companies paid back loans. Many companies did not have the money and therefore had to close.

Question 15

How many companies collapsed between 1929 and 1933?

Answer 15

100,000

Question 16

What was the effect of the Wall Street Crash on ordinary people?

Answer 16

People who had borrowed money from the banks for mortgages lost their houses when the banks demanded that they paid back all the money at once.

Question 17

What was the effect on workers of the Wall Street Crash?

Answer 17

Huge numbers were made unemployed when the businesses they worked for closed or sacked large numbers of people to try to reduce costs.

Question 18

What are the four stages of the cycle of depression?

Answer 18

Reduced demand for consumer goods leads to reduced production of consumer goods leads to increased unemployment leads to less money available to buy consumer goods which leads to reduced demand for consumer goods

Question 19

What happened on Tuesday 29th October 1929

Answer 19

16 million shares were sold for any price they could get. $8 billion was lost during this one day.