"We are buying on the installment plan... paying for them out of future earnings. This means that we have mortgaged our future income... If anything happens to reduce our income, we will be unable to pay."
— Senator James Couzens, 1926
The situation described in the excerpt most directly illustrates which of the following systemic vulnerabilities in the United States economy during the 1920s?
- AA decline in industrial production caused by heavy federal regulation of manufacturing
- BAn immediate insolvency of federal safety net programs designed to support retired workers
- A reliance on consumer credit and installment buying that left households vulnerable to income dropsAnswer
- DA collapse of international trade due to absolute isolationist foreign policies
Answer
The correct answer states that the situation illustrates a reliance on consumer credit and installment buying that left households vulnerable to income drops.
The correct option correctly identifies consumer credit and installment plans as a major vulnerability. The excerpt warns that consumers were buying goods on credit and mortgaging their future income, which meant any reduction in income would lead to defaults, destabilizing the economy.
Step-by-Step Solution
Key Concept
Underlying weaknesses in the 1920s economy, specifically consumer debt and credit expansion.