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Why did the American Economy collapse after the Wall Street Crash?

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Introduction

Sarah Thomas Why did the American Economy collapse after the Wall Street Crash? The economic boom of the 1920s came to an end in October 1929. The boom got totally out of control by 1929 with the average price of shares increasing by 300%. People would buy on the margin, and then waiting for the prices to go up before selling to make a profit. By the summer of 1929 there were 20 million shareholders in America and the prices continued to rise. Until October of that year when people realised that the prices had risen too much and were about to fall, so people began a drastic sell. This resulted in the Crash. The immediate consequences of the crash were the massive unemployment. By 1932 there were 13 million people unemployed. Banks lacked the right amount of cash as a reserve and were giving out loans much too easily. ...read more.

Middle

The fall in demand of the products was a result of the poor income distribution. Too much of the income from the 1920s boom was going into too few hands. By 1929, 5% of the American population was receiving 33% of the total income. By reducing the top rates of tax, the Republican government was helping the rich to become richer. Some of the wealth was spent or invested. But there was a limit to what this small percentage could consume. Higher wages would have resulted in greater consumption of goods and therefor a greater demand on goods, this would have stopped the mass unemployment and may have even stopped the depression happening at all. The Crash in 1929 revealed many weaknesses in the way in which businesses were carried out. During the 1920s, companies had been given as much freedom as they needed by the Republican government and tax breaks to big businesses, while the government provided no welfare. ...read more.

Conclusion

Farmers could not afford to pay debts and bills, which resulted in the banks taking over the farms to repay their debts. President Herbert Hoover was widely blamed for failing to lift the USA out of the depression. Like many Americans, Hoover thought that the depression would eventually cure itself. He was very reluctant to use the powers of the government to aid in the recovery of the economy. He reluctantly set up the Reconstruction Finance Corporation in hope to relief the pressure of money. It was aimed to lend money to banks, insurance companies and railways and he also passed the Federal Home Loan Act, which provided loans to Building Societies, and the Relief and Construction Act. Hoover believed in the 'trickle down' effect. He hoped that these loans would encourage investments and eventually provide jobs. But they did too little too late. The Wall Street Crash was the trigger event that started the great depression. The collapse was due to a combination of factors acting like a chain reaction. ...read more.

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