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How important was the Wall Street Crash as a reason for the economic crisis of 1929-33? - Scottish Highers History - Question 50 - 2018
Question 50
How important was the Wall Street Crash as a reason for the economic crisis of 1929-33?
Worked Solution & Example Answer:How important was the Wall Street Crash as a reason for the economic crisis of 1929-33? - Scottish Highers History - Question 50 - 2018
Step 1
The Wall Street Crash
Answer
The Wall Street Crash of October 1929 is often seen as the catalyst for the economic crisis that followed. Leading up to the crash, many individuals and businesses were engaged in speculative buying of stocks, encouraged by the booming economy and the culture of investment. This bubble burst dramatically, particularly on Black Tuesday (October 29, 1929), which marked the beginning of a rapid decline in stock prices. The immediate aftermath led to widespread losses for investors, significantly reducing consumer confidence and spending.
Step 2
Overproduction of Goods
Answer
The late 1920s saw significant overproduction driven by advancements in mass-production methods. While consumer demand initially increased, by 1929, the market was flooded with goods such as automobiles and household appliances. As a result, many factories laid off workers, which further deepened the economic downturn following the crash.
Step 3
International Economic Problems
Answer
The global economic context also played a vital role. Europe was facing its crises, and American industries depended on exports. As international markets contracted, countries, including the USA, faced declining demand for goods. This decline exacerbated the economic fallout from the Wall Street Crash.
Step 4
Government Policies
Answer
During the 1920s, the U.S. government adhered to a laissez-faire approach, which limited intervention in the economy. This lack of regulation contributed to the weaknesses in the banking system, and when the crash occurred, banks were ill-equipped to handle the ensuing withdrawals, leading to further economic instability.
Step 5
Weaknesses of the U.S. Banking System
Answer
The banking system, comprising numerous small, state-chartered banks, proved fragile during the crisis. The failure of many banks during this period led to a significant contraction in credit, crippling businesses and leading to increased unemployment and further economic decline. The interconnectedness of banking failures meant that without an effective banking system, the economy could not function.