The Wall Street Crash and its effects Flashcards
Reasons for the Crash
• The banking system
Out of date by the 1920s
The system allowed the banks to regulate themselves without the government having to interfere.
Why was the banking system a reason for the Crash
Local banks were not part of the centralised system. In the 1920s, there were over 30,000 banks in the USA. Most were very small and unable to cope with financial problems.
Reasons for the Crash
• Over-speculation on the stock market
In 1928, shares did not rise as much as in previous years because many companies were not selling as many goods, so their profits fell.
Fewer people were willing to buy their shares and there was a drop in confidence in the market.
Reasons for the Crash
• Availability of easy credit
75% of the purchase price of shares was borrowed, which subsequently created artificially high prices.
Reasons for the Crash
• Loss of confidence
Small investors saw the fall in prices and rushed to sell their own shares, which led to a complete collapse of prices and thousands of investors lost millions of dollars.
Effects of the Crash
1) Collapse of businesses with individuals losing billions
2) People had lost so much could no longer afford to consume or invest.
3) Workforces were laid off, which meant there was even less money within the economy for spending.
