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Difficulty: HardCultural and Technological Innovations of the 1920s

Read the excerpt below and answer the following question.

"We are witnessing a silent revolution in the habits of our people. The old precept of 'pay as you go' has been replaced by a new philosophy of 'possess now, pay later.' Through the agency of the installment plan, the average wage earner is encouraged to purchase automobiles, electric washing machines, and radios that would have been unimaginable luxuries a generation ago. While this system has fueled our manufacturing plants and created a facade of universal prosperity, it binds the individual to the factory wheel, as he must work uninterruptedly to meet his weekly obligations to the finance companies."
—Adapted from a magazine article, 1926

Which of the following was a major consequence of the economic practices described in the excerpt?

  1. A
    It marked the initial shift from home-based subsistence production to a national market-oriented manufacturing system.
  2. It established a consumer economy heavily reliant on debt, making it highly vulnerable to disruptions in employment and income.Answer
  3. C
    It led directly to the creation of federal programs designed to insure private bank deposits and regulate consumer credit.
  4. D
    It was accompanied by a total withdrawal of United States financial institutions from European markets to focus capital on domestic consumer loans.

Answer

The correct answer is the option stating that the practice established a consumer economy heavily reliant on debt, making it highly vulnerable to disruptions in employment and income.
The adoption of installment buying and consumer credit in the 1920s allowed Americans to buy durables on time, but it created a leveraged economy where a sudden loss of employment or income would prevent consumers from meeting their obligations. This built-in instability contributed significantly to the rapid decline in consumer spending when the Great Depression began.

Step-by-Step Solution

1
Analyze the stimulus to identify the central economic innovation described.
The stimulus describes the rise of the installment plan, which allowed wage earners to purchase expensive consumer goods (automobiles, appliances) by pledging future earnings.
Understanding the core mechanism of 1920s consumer credit is necessary to evaluate its consequences.
2
Link the practice of installment buying to the broader economic trends of the 1920s.
While credit stimulated mass production and created a facade of prosperity, it tied consumer spending directly to continuous employment.
This helps determine the structural vulnerabilities introduced by mass consumer debt.
3
Evaluate the options to identify the correct historical consequence.
The reliance on credit made the economy fragile, as any drop in income would lead to defaults and a collapse in demand, which occurred at the start of the Great Depression.
This confirms the correct option and eliminates distractors based on chronological or conceptual mismatches.

Key Concept

The growth of consumer debt and the installment plan in the 1920s.
Estimated Time:2m 0s
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Topics

Cultural and Technological Innovations of the 1920s

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