Explain the causes of the Great Depression.
Model Answer & Options
Source: TextbookThe Great Depression (1929-mid 1930s) was caused by a combination of factors:
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Agricultural Overproduction and Falling Prices: The post-war agricultural recovery in Europe and continued production elsewhere led to a glut of grains. This caused prices to crash, ruining farmers who couldn't repay their loans.
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Over-investment and Stock Market Crash: In the 1920s, the US experienced a speculative boom, with many people investing borrowed money in the stock market. When the market crashed in October 1929, it wiped out fortunes and shattered consumer confidence.
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Fragile US Banking System: Many US banks had extended large loans for speculation and were also major lenders to the world. When people defaulted on loans and rushed to withdraw their savings after the crash, thousands of banks failed, causing a credit crunch.
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US Protectionism and Withdrawal of Loans: In an attempt to protect its economy, the US doubled import duties, crippling world trade. Furthermore, US lenders panicked and withdrew their loans from Europe and other parts of the world, leading to the collapse of major banks and currencies in Europe.
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