What caused the Great Depression?

Question

What will be an ideal response?

Answer 1

There were a variety of factors leading to the Great Depression. Problems had been evident in the nation's economy even during the boom years. Industries such as textiles and mining suffered throughout the twenties from overproduction and falling demand, and a dip in the demand for automobiles harmed related industries such as steel and rubber.

The unequal distribution of income in American society lowered the purchasing power of working-class Americans, which slowed economic growth. Additionally, overseas markets for U.S. companies were damaged when foreign countries imposed high tariffs against American goods as a response to taxes the federal government levied against imported products. This led to massive layoffs at American companies and investors likewise stopped supplying capital funds for these companies.

Farmers also struggled prior to the Depression. When the war ended and demand fell, farmers were left with debts, larger farms, and falling crop prices. Mechanized farming and the ability to grow more crops with less effort hurt farmers when overproduction reduced prices even further.

Speculation in the stock market led to the stock market crash of 1929, which was the official beginning of the Depression. Speculation had inflated share prices to such an extent that a stock's price had no relation to the actual worth of the company. Also, many speculators had used short-term loans to buy stock but then could not repay these loans once stock prices began to fall. Finally, investors had speculated with other people's money, which resulted in many people losing their life savings when the market crashed in October 1929.