1. What were the underlying causes of the Great Depression?
Answer:
The Great Depression, which began in 1929, was caused by several interconnected factors:
- Overproduction and Underconsumption: During the 1920s, industries and farms produced more goods than the market could consume, leading to falling prices and unsold inventory.
- Stock Market Speculation: The 1920s saw a speculative bubble in the stock market. Investors bought stocks on margin (borrowed money), and when prices collapsed, they were unable to repay loans.
- Bank Failures: Many banks failed due to risky lending practices and insufficient reserves, eroding public confidence and reducing available credit.
- Income Inequality: A significant wealth gap limited consumer spending, reducing demand for goods.
- Global Trade Decline: Protectionist policies like the Smoot-Hawley Tariff Act discouraged international trade, exacerbating the global economic slowdown.
2. How did the stock market crash of 1929 contribute to the Great Depression?
Answer:
The stock market crash of October 1929 marked the onset of the Great Depression.
- Loss of Wealth: The crash wiped out billions in investments, reducing consumer spending and business investment.
- Banking Crisis: Investors who had borrowed to buy stocks defaulted on loans, leading to bank failures.
- Confidence Crisis: The crash shattered public confidence in the economy, triggering a pullback in spending and investment.
- Unemployment: Businesses cut jobs as demand fell, creating a vicious cycle of economic decline.
3. What role did the banking system play in deepening the Great Depression?
Answer:
- Bank Runs: Depositors, fearing insolvency, rushed to withdraw funds, leading to bank failures.
- Reduced Lending: Bank collapses restricted credit, stifling economic activity.
- Federal Reserve Policy: The Federal Reserve’s decision to tighten monetary policy during the early 1930s reduced the money supply, worsening deflation.
4. What were the global effects of the Great Depression?
Answer:
The Great Depression had widespread global impacts:
- Economic Contraction: Many economies experienced significant declines in output and employment.
- Trade Wars: Protectionist policies like high tariffs reduced international trade.
- Political Instability: Economic hardships fueled extremism and the rise of authoritarian regimes, notably in Germany and Italy.
- Colonial Economies: Colonies dependent on exports of primary goods suffered as global demand and prices fell.
5. Explain the impact of the Smoot-Hawley Tariff Act on global trade.
Answer:
- High Tariffs: The Smoot-Hawley Tariff Act (1930) raised U.S. tariffs on imported goods to record levels, aiming to protect domestic industries.
- Retaliation: Other countries responded with their own tariffs, leading to a decline in international trade.
- Global Recession: Reduced trade volumes deepened the economic crisis worldwide, worsening unemployment and production declines.
6. How did the Great Depression affect agricultural communities?
Answer:
- Falling Prices: Overproduction led to plummeting crop prices, reducing farmers’ incomes.
- Debt and Foreclosures: Many farmers were unable to repay loans, leading to widespread foreclosures.
- Dust Bowl: Environmental degradation in the U.S. Midwest created the Dust Bowl, further devastating agriculture.
- Migration: Displaced farmers, especially from the Dust Bowl region, migrated in search of work, often to California.
7. How did income inequality contribute to the Great Depression?
Answer:
- Wealth Concentration: A small elite controlled a large portion of wealth, while the majority had limited purchasing power.
- Demand Gap: The inability of most consumers to afford goods led to a mismatch between production and consumption.
- Savings Hoarding: Wealthy individuals tended to save rather than spend, reducing economic activity.
8. What was the role of international financial systems in spreading the Depression?
Answer:
- Reparations and Debts: After World War I, countries like Germany struggled with reparations, while others faced war debt repayments.
- Gold Standard: Fixed exchange rates under the gold standard limited monetary policy flexibility, prolonging economic crises.
- Banking Failures: The collapse of banks like Austria’s Kreditanstalt in 1931 had a ripple effect on global finance.
9. What measures were introduced under the New Deal to combat the Great Depression?
Answer:
The New Deal, introduced by Franklin D. Roosevelt, included:
- Relief: Programs like the Civilian Conservation Corps (CCC) provided immediate employment.
- Recovery: Public works projects under the Works Progress Administration (WPA) stimulated economic activity.
- Reform: The Glass-Steagall Act separated commercial and investment banking, and the Social Security Act introduced welfare programs.
10. How did the Great Depression lead to the rise of fascism in Europe?
Answer:
- Economic Hardship: High unemployment and poverty created fertile ground for extremist ideologies.
- Public Discontent: Weak democratic governments failed to address crises effectively, leading to a loss of trust.
- Promises of Stability: Leaders like Adolf Hitler and Benito Mussolini promised economic recovery and national resurgence, gaining popular support.
11. Discuss the role of monetary policy during the Great Depression.
Answer:
- Tightening Policy: The Federal Reserve raised interest rates in 1928 and 1929 to curb stock market speculation, reducing credit availability.
- Gold Standard: The commitment to the gold standard limited central banks’ ability to expand the money supply.
- Deflation: Tight monetary policy contributed to falling prices, discouraging spending and investment.
12. How did unemployment manifest during the Great Depression?
Answer:
- Scale: Unemployment reached 25% in the U.S. by 1933.
- Urban and Rural Areas: Both urban industries and rural farms experienced mass layoffs.
- Psychological Impact: Long-term unemployment led to widespread despair and loss of self-esteem.
13. Analyze the significance of the London Economic Conference of 1933.
Answer:
- Objective: The conference aimed to promote international cooperation to address the Depression.
- Failure: Disagreements, particularly U.S. opposition to fixed exchange rates, led to its collapse.
- Impact: The failure underscored the lack of coordinated global response to the crisis.
14. How did the Great Depression affect women and minorities?
Answer:
- Employment Discrimination: Women and minorities faced job losses as employers prioritized white male workers.
- Wage Inequality: Those who remained employed often received lower wages.
- Social Challenges: Economic hardships intensified social inequalities.
15. Compare the effects of the Great Depression on industrialized and developing countries.
Answer:
- Industrialized Nations: Countries like the U.S. and Germany experienced severe industrial and financial collapses.
- Developing Countries: Colonies dependent on export commodities suffered due to falling prices and reduced trade demand.
16. How did the Dust Bowl worsen the effects of the Great Depression?
Answer:
- Environmental Disaster: Severe drought and soil erosion devastated farms in the Midwest.
- Mass Migration: Thousands of families became “Okies,” migrating in search of work.
- Economic Loss: Agricultural output declined, worsening the rural economic crisis.
17. Discuss the cultural and social impact of the Great Depression.
Answer:
- Cultural Shift: Literature and art reflected themes of struggle and resilience, e.g., Steinbeck’s The Grapes of Wrath.
- Community Support: Families and communities formed mutual aid networks to survive hardships.
- Shift in Values: The Depression fostered skepticism about unchecked capitalism.
18. How did World War II contribute to ending the Great Depression?
Answer:
- Demand Surge: Wartime production increased demand for goods and services.
- Employment: Military enlistment and war industries provided jobs, reducing unemployment.
- Government Spending: Massive public spending on the war effort stimulated economic growth.
19. Explain the role of Keynesian economics in addressing the Great Depression.
Answer:
- Theory: John Maynard Keynes advocated for increased government spending to stimulate demand during economic downturns.
- Application: The New Deal incorporated Keynesian principles, focusing on public works and social welfare to boost the economy.
20. How did the Great Depression shape future economic policies?
Answer:
- Regulation: Governments introduced financial regulations to prevent future crises, e.g., the SEC in the U.S.
- Social Welfare: Safety nets like unemployment insurance became more common.
- Global Cooperation: Institutions like the IMF and World Bank were created post-WWII to promote economic stability.
