the great depression and new deal: answer the following questions over this period of time. 1. explain how each of these things contributed to the start of the great depression. stock market crash/speculation and buying on margin: bank failures: federal reserve policy mistakes: protective tariff: overproduction:

Question

Accepted Answer

### 1. Stock Market Crash/Speculation and Buying on Margin:
# Brief Explanations:
- **Speculation**: In the 1920s, many investors bought stocks in the hope of quick profits, driving stock prices far above their real value (a speculative bubble).
- **Buying on Margin**: Investors could buy stocks by paying a small fraction (e.g., 10 - 20%) of the stock price (margin) and borrowing the rest. When stock prices fell (as in the 1929 crash), investors faced margin calls (needing to repay loans). Many couldn’t, so they sold stocks, causing prices to plummet further. The crash wiped out savings, reduced consumer confidence, and led to less spending/investment, triggering the Depression.
# Answer:
Speculation created an overvalued stock market bubble. Buying on margin (borrowing to buy stocks) amplified losses: when the 1929 crash hit, margin calls forced mass sell - offs, collapsing prices, wiping out wealth, and crushing consumer/business confidence, reducing spending and investment to start the Depression.

### 2. Bank Failures:
# Brief Explanations:
- Many banks in the 1920s were undercapitalized (had little reserve money) and made risky loans (e.g., to speculators). When the stock market crashed, depositors panicked (fear of losing savings) and rushed to withdraw money (bank runs). Banks, with most money loaned out or invested, couldn’t meet withdrawal demands. Thousands of banks failed. This destroyed people’s savings, reduced the money supply, and made banks reluctant to lend, hurting businesses and consumers who needed credit, worsening the economic downturn.
# Answer:
Bank runs (from panicked depositors after the crash) and risky pre - crash lending (e.g., to speculators) caused thousands of banks to fail. Failed banks destroyed savings, shrank the money supply, and made banks stop lending. This hurt businesses (needing credit) and consumers (losing savings), reducing economic activity and starting the Depression.

### 3. Federal Reserve Policy Mistakes:
# Brief Explanations:
- The Federal Reserve (Fed) failed in two key ways: (1) It didn’t act as a “lender of last resort” during bank runs—instead of providing emergency funds to stable banks, it let many fail, shrinking the money supply. (2) It raised interest rates in the early 1930s (to defend the gold standard), making borrowing more expensive. This discouraged business investment and consumer borrowing (e.g., for homes/cars), and also made the dollar overvalued, hurting exports. The tight money policy deepened the economic slump.
# Answer:
The Fed failed to stop bank runs (no lender - of - last - resort support) and raised interest rates/tightened money. This shrank the money supply, discouraged borrowing/investment, overvalued the dollar (hurting exports), and worsened the economic contraction that started the Depression.

### 4. Protective Tariff (e.g., Smoot - Hawley Tariff):
# Brief Explanations:
- The Smoot - Hawley Tariff (1930) raised U.S. tariffs on imported goods to record levels, aiming to protect domestic industries. Other countries retaliated by raising their tariffs on U.S. exports. Global trade collapsed: U.S. farmers and manufacturers lost foreign markets (exports dropped), and domestic industries, now shielded, became inefficient (no foreign competition). Reduced trade meant less economic activity, lost jobs, and a downward spiral as countries’ economies became more isolated, worsening the Depression’s onset.
# Answer:
The Smoot - Hawley Tariff (high U.S. import duties) sparked global trade wars. Foreign nations retaliated with tariffs on U.S. goods, slashing U.S. exports (hurting farmers/manufacturers) and collapsing global trade. Domestic industries also became inefficient (no foreign competition), reducing economic activity and jobs to start the Depression.

### 5. Overproduction:
# Brief Explanations:
- In the 1920s, U.S. industries (e.g., auto, farm) produced more goods than consumers could buy (due to unequal income distribution—most wealth was with the rich, who saved more, while poor/middle - class had limited buying power). For example, farms overproduced crops, leading to falling prices. Manufacturers overproduced consumer goods. When demand couldn’t keep up, prices dropped, profits fell, businesses cut production and laid off workers. Unemployment rose, reducing consumer spending further, creating a vicious cycle that started the Depression.
# Answer:
Unequal income (rich saved, poor/middle had low buying power) and industrial/farm overproduction (e.g., too many cars, crops) meant supply exceeded demand. Falling prices/profits forced businesses to cut production and lay off workers. Rising unemployment and falling income reduced spending, creating a cycle of decline that began the Depression.

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Question

Explanation:

1. Stock Market Crash/Speculation and Buying on Margin:

Answer:

2. Bank Failures: