The Crash Occurs and the Great Depression Begins

1. What industrial weakness signaled a declining economy in the 1920s?        
     The 1920s are said to have been an age of prosperity for the United States, but underlying the age of prosperity were serious industrial problems. Industries such as steel, textiles, and railroads were hardly making any profits, the mining and lumber industries were no longer in high demand because World War I had ended, agriculture prices dramatically dropped, and fewer houses were being built. All of these industries were major parts of the United States'  economy.Their decline pointed to economic trouble for the United States.

2. What did the experience of farmers and consumers at this time suggest about the health of the economy?       
     The demand that World War I created for agricultural goods quickly declined after the war was over.  From 1919-1921 the yearly income for farmers declined by 40%. Because the farmer's incomes were falling, the farmers weren't buying as many goods and services. In fact, most people weren't buying as many goods and services. There was a surplus of goods and services and not enough people to buy them. The falling prices of a staple industry such as agriculture and the surplus of products suggested that an economic crisis was looming in the future for the American people.  


3. How did speculation and margin buying cause stock prices to rise?      
      In the 1920s  the stock prices were artificially rising because of speculation and buying on margin. People were hurrying to buy shares without thinking through all of the risks involved. This caused the stock prices to rise because there was a higher demand. Also, people were borrowing money to invest in the stock market. Speculation and margin buying caused the stocks to not be backed with real money, and caused a high demand for the stocks.


4. What happened to ordinary workers during the Great Depression?      
       Ordinary workers were hit hard by the Great Depression. The unemployment rate went from 3% to 25%. The workers who still had jobs were confronted with pay cuts, and reduced hours. Many workers had lost their saving, either from stock market investments, or failed banks.


5. How did the Great Depression affect the world economy?     
       Not only did the Great Depression affect the Untied States' economy, but the depression also affected the world economy. Countries already paying off war debts were earning less on the products exported to the United States. Also, the Hawley-Smoot Tarrfif Act inhibited other countries from earning American currency. In return other countries also made high tarrifs. As a result world trade fell by 40%.