Explain 2 factors that led to the Great Depression.
There were several factors that led to the Great Depression, but two key factors that played a significant role were:
1. Overproduction and Underconsumption: Throughout the 1920s, there was a rapid expansion of production capacity in industries such as agriculture, manufacturing, and mining. This led to a surplus of goods in the market, causing prices to fall. As a result, companies faced declining revenues and profits, leading to reduced investment, layoffs, and wage cuts. With lower incomes and increased unemployment, people had less money to spend, resulting in a decrease in consumer demand. The combination of overproduction and underconsumption created a vicious cycle, causing further economic contraction and contributing to the onset of the Great Depression.
2. Stock Market Crash of 1929: The stock market crash of October 1929 marked the beginning of the Great Depression. In the late 1920s, speculation and excessive borrowing led to a rapid increase in stock prices, creating an asset bubble. However, in October 1929, investors began selling their stocks due to uncertainty and concerns about the economy. Consequently, stock prices plummeted, and numerous investors faced significant losses. The crash severely eroded consumer and investor confidence, leading to a sharp decline in spending and investment. Banks also suffered as their loans were tied to depreciating stocks, leading to widespread bank failures. The stock market crash, coupled with the ensuing bank failures, triggered a severe financial crisis, exacerbating the economic downturn and leading to the Great Depression.