US Economic Challenges in the 1920s

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Questions and Answers

What was a significant issue faced by the older industries in the US during the 1920s?

Increased production levels

Decreasing production and falling profits (correct)

Rising profits and employment

Government support and intervention

Which factor contributed to the bankruptcy of many farmers in the 1920s?

Successful crop yields leading to price drops

Increased international demand for American crops

Government subsidies for excess production

Mechanization and overproduction of goods (correct)

What was one of the consequences of the Republican government's laissez-faire policies?

Support for foreign competition

Increased government spending on industry

Government intervention in farming practices

A tariff war with European countries (correct)

How did market saturation of consumer goods impact the economic situation in the late 1920s?

Falling business profits and stock values Signup and view all the answers

What major flaw existed within the US banking system during the 1920s?

Unregulated and unsupervised practices Signup and view all the answers

What was the belief held by many regarding the US economy during the 1920s?

It would continue to boom indefinitely Signup and view all the answers

Why did tariffs imposed by the US government initially seem beneficial?

They protected American goods from competition Signup and view all the answers

What percentage of people were below the poverty line in the 1920s, indicating wealth disparity?

42% Signup and view all the answers

What was one significant factor that contributed to the inability of many individuals to repay their loans during the stock market speculation?

Decline in wages and manufacturing jobs Signup and view all the answers

Which economic event signaled the first downturn in industrial output in four years?

Decline in industrial output Signup and view all the answers

How did the wealth gap impact consumer spending in the late 1920s?

A large portion of the population could not afford consumer goods Signup and view all the answers

What was the impact of banks lending to speculators during this period?

It contributed to bank closures and financial instability Signup and view all the answers

What was one consequence of falling farm profits in the late 1920s?

Diminished ability to purchase goods and growing credit issues Signup and view all the answers

Which of the following best describes the state of car sales leading up to the Wall Street Crash?

Declining sales indicating reduced consumer spending Signup and view all the answers

What was a contributing factor to market saturation in the 1920s?

Declining production rates in consumer goods Signup and view all the answers

What was the primary reason speculators bought shares using borrowed money?

To profit from an anticipated increase in share value Signup and view all the answers

What effect did the downturn in share values have on public confidence in the economy?

It weakened faith in the ongoing prosperity of the economy Signup and view all the answers

What was the total number of speculators by 1929?

20 million Signup and view all the answers

What was the Babson break and why was it generally ignored?

A forecast for a recession; people were confident in the economy. Signup and view all the answers

How did speculators contribute to the rise in share prices?

By creating a perception of stability and ongoing growth Signup and view all the answers

What was the approximate volume of shares bought and sold on 19th October 1929?

3.5 million shares Signup and view all the answers

What was the state of the stock market on Tuesday, 22nd October after the preceding weekend's sell-off?

Share values experienced an increase Signup and view all the answers

In what manner did the advertisement spending of $3 billion in 1929 reflect the economic condition?

It revealed that companies needed to stimulate lagging sales. Signup and view all the answers

What percentage of their own money did speculators typically invest when buying shares on margin?

10% Signup and view all the answers

What was one immediate consequence of selling shares to pay back bank loans during the market crash?

Share values fell further. Signup and view all the answers

How did the trading volume on October 29th reflect investor sentiment?

It showed a lack of buying interest. Signup and view all the answers

What did President Hoover’s October 26 speech aim to do regarding the stock market?

Raise confidence in the economy. Signup and view all the answers

What was Hoover's primary belief about governmental intervention in economic crises?

Less government interference is preferable. Signup and view all the answers

What event led to a rush of selling shares on October 24?

Panic among investors about falling prices. Signup and view all the answers

What was a significant factor contributing to the surprise of the events on October 28 and 29?

Hoover's consistent optimism about the economy. Signup and view all the answers

What approach did Hoover believe was appropriate for helping those who lost their jobs?

Support through state governments and charities. Signup and view all the answers

What was one of the results of widespread speculation in the stock market prior to the crash?

An inflated sense of security in economic conditions. Signup and view all the answers

Study Notes

Weaknesses of the US Economy in the 1920s

Older industries like coal mining faced declining production, falling profits, and rising unemployment.
Farm incomes dropped due to overproduction and mechanization, leading to bankruptcies.
Republican policies of laissez-faire economics avoided government intervention to support struggling industries.
Protective tariffs, intended to shield American producers, led to international trade conflicts that hurt exports.
Overproduction saturated consumer markets, as many people could not afford goods.
The banking system was poorly regulated, contributing to the failure of many small banks.
Excessive speculation and faith in economic growth fueled the stock market boom, making people prone to risk and contributing to the crash.

Problems of Late 1928/Early 1929

Slowdowns in car sales illustrated a decrease in consumer spending power.
Falling industrial output signaled that businesses were experiencing decreased production and sales.
Stock prices fell notably beginning in 1928.
Falling farm profits and rising unemployment in agriculture further weakened the economy.
Wide wealth gap exacerbated problems; many were unable to afford consumer goods.
Banks inappropriately lent money to speculators, increasing the risk of bank failures.
Excessive advertising spending suggested a demand problem, not necessarily a supply one.

Speculators and the Stock Market

Speculators borrowed money ("on margin") to buy shares in companies they hoped would rise in value.
Speculators drove up share prices through their activity and anticipation of further gains.
By 1929, there were 20 million speculators.
Speculative buying encouraged further investment.

Wall Street Crash of 1929 (October 19th - 29th)

Increased selling of shares led to a sharp decline in share prices.
Shares continued to fall on Monday 21st and Tuesday 22nd October.
Significant share selling on Wednesday 23rd and Thursday 24th October.
Banks tried to stabilize the market, but fears and panic selling prevailed.
Many speculators lost their money due to high share value volatility.
On October 29th, over 16 million shares were traded, resulting in dramatic losses.

President Hoover's Actions

Hoover advocated for rugged individualism and less government intervention in the economy.
He believed that charities and state governments should address economic problems.
Hoover did create some government infrastructure projects to create jobs, but they were not enough to solve the crisis.

Other Economic Factors

The 1930 Hawley-Smoot tariffs were designed to protect US goods but created trade conflicts.
The Reconstruction Finance Corporation (RFC) was in place to provide $1.5 billion in loans to support failing businesses.
The Farmer's Board bought surplus crops to keep prices up.

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Description

Test your knowledge on the major economic issues and challenges faced by industries and farmers in the United States during the 1920s. Explore the impact of laissez-faire policies, market saturation, and the banking system flaws that contributed to economic instability. This quiz covers key factors that defined the era's economic landscape.