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Great Depression
Causes of the Great Depression
| Question | Answer |
|---|---|
| Q: What was “buying on margin” and how did it contribute to the crash? | A: Buying stock with borrowed money. Optimism and easy credit led to inflated stock prices; when banks called in loans, panic selling began. |
| Q: What was Black Tuesday and when did it occur? | A: October 29, 1929. A massive stock sell-off triggered the beginning of the market crash with over 16 million shares sold. |
| Q: Why did the stock market crash so suddenly? | A: Inflated stock prices, banks calling in margin loans, and mass panic selling. |
| Q: What role did the Federal Reserve play before the crash? | A: Allowed significant monetary expansion, contributing to stock price inflation. |
| Q: What did the Federal Reserve do after the crash, and what was the result? | A: Reduced the money supply, causing liquidity issues and leading to widespread bank failures. |
| Q: How do monetarists like Milton Friedman explain the Great Depression? | A: The Fed unintentionally contracted the money supply. People hoarded money, reducing spending, income, and employment. |
| Q: How do Keynesians explain the Great Depression? | A: A large drop in aggregate demand during a natural business cycle. The government should've intervened with spending to stimulate demand. |
| Q: What were some weak sectors in the U.S. economy before the Depression? | A: Agriculture, textiles, and coal mining. |
| Q: Why was the American economy described as built on a “foundation of sand”? | A: Stock prices were high, but economic fundamentals (like wages and industrial output) were weak. |
| Q: How did Germany's economic collapse affect the global economy? | A: Germany defaulted on reparations, which destabilized international trade and finance. |
| Q: What was the Smoot-Hawley Tariff and its impact? | A: Imposed tariffs on 880+ foreign goods. 36 countries retaliated, reducing international trade by 66% by 1934. |
| Q: What caused the Dust Bowl and what were its effects? | A: Drought and poor farming techniques. Led to massive farm failures and migration of “Okies” westward. |
| Q: What was the state of agriculture post-WWI? | A: Farm prices dropped, loans defaulted, and foreclosures rose due to the end of wartime subsidies. |
| Q: What caused widespread bank closures during the Depression? | A: Bank runs and lack of reserves due to fractional reserve banking and reduced money supply. |
| Q: What is the Marxist interpretation of the Great Depression? | A: It was the inevitable result of capitalism’s internal contradictions and instability. |
| Q: What is the Austrian School interpretation of the Depression? | A: The Fed’s easy credit policy created an unsustainable boom, which led to the bust. |
Created by:
CJA98
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