Question

causes of the great depression
directions analyze the text and answer the questions that follow
bank failures
the banking crisis was extremely
complex — entire college courses can
be taught about it. to sum things up,
during the 1920s, people were investing
so much money in the stock market that
they actually took out loans from banks
in order to invest even more money.
the banks were also investing by
borrowing money that people had
invested in them. however, when the
stock market started to fall, people
rushed to collect their money. when
the market officially crashed on black
tuesday just a few days later, the
banks had no money to give back to
their clients, and people that they
granted loans had no way of paying back
the loans. this contributed to a banking
crisis. up to 9,000 banks failed while
leaving thousands in poverty.
overproduction
overproduction was one of the main
causes of the great depression. this is
because during the “roaring twenties”,
people were so optimistic about the
economy that they set false
expectations for the future. industries
anticipated a need for more and more
products, so they produced more than
they needed to, hence the term
‘overproduction’. however,
because there was such an oversupply,
the prices ended up being lowered. this
caused companies to suffer losses
which caused their share prices on the
stock market to plummet. after prices
for farm products fell (together with
with the banking crisis), farmers could
not pay off their bank loans. this led to
many farmers losing their farms and
homes.
stock market crash
on october 24, 1929, which we refer
to as black thursday, stock market
shares dropped in price. people started
panic - selling their shares to hopefully
save their money from ruin. just a few
days later was october 29, 1929 —
black tuesday — which many
historians consider the official start of
the great depression. black tuesday
was when the stock market crashed.
share prices dropped $14 billion that
day and $30 billion by the end of the
week. banks invested their clients’
money in the stock market, meaning
when people tried to retrieve their
money, they couldn’t. because
americans were afraid that the
situation would get worse, they held
onto everything they had, so nobody
was buying or selling anything.

1. why did banks have no money to give back to their clients on black tuesday?
2. why did about 9,000 banks fail after the stock market crash of 1929 — leaving thousands in poverty?
3. how was overproduction a cause of the great depression?
4. explain how overproduction led to farmers losing their farms and homes.
5. explain why the stock market crashed on october 29, 1929.

Explanation:

To answer these questions, we analyze the provided text about the Great Depression's causes:

Question 1:

From the "Bank Failures" section: Banks invested clients' money in the stock market and also lent money to people who invested in stocks. When the stock market crashed, the loans couldn't be repaid, and the invested money was lost, so banks had no funds to return.

Question 2:

From "Bank Failures": After the stock market crash, people rushed to withdraw money. Banks had invested clients' money (lost in the crash) and lent to those who couldn't repay. With insufficient funds to meet withdrawals, up to 9,000 banks failed, pushing many into poverty.

Question 3:

From "Overproduction": In the 1920s, optimism led industries to overproduce. Oversupply lowered prices, causing company losses and plummeting stock prices. Farm product prices also fell, contributing to the economic downturn of the Great Depression.

Question 4:

From "Overproduction": Overproduction caused farm product prices to drop. Farmers couldn't earn enough to repay bank loans. With the banking crisis (banks short on funds), farmers defaulted, leading to loss of farms/homes.

Question 5:

From "Stock Market Crash": On Black Thursday (Oct 24), prices dropped, triggering panic - selling. By Black Tuesday (Oct 29), the panic intensified. Banks had invested clients' money in stocks; when people tried to withdraw, banks couldn't pay. Fear of worsening conditions led to a halt in buying/selling, causing the crash.

Answer:

1. Banks invested clients' money in the stock market and lent to stock - investing borrowers. The crash meant lost invested money and unrepayable loans, so no funds to return.
2. Post - crash, mass withdrawals occurred. Banks lost invested money and had unrepayable loans, leaving them unable to meet demands, so ~9,000 failed.
3. Overproduction led to oversupply, price drops, company losses, stock price declines, and farm price drops, fueling the Great Depression.
4. Overproduction dropped farm prices; farmers couldn't repay loans. The banking crisis meant banks couldn't help, so farmers lost properties.
5. Panic - selling started on Oct 24. By Oct 29, panic grew. Bank - invested client money was lost, and fear froze trade, causing the crash.