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Zorluk: OrtaCauses of the Great Depression

"The rapid expansion of installment credit has temporarily solved the problem of distributing our immense industrial output. However, this device of buying on time merely shifts future purchasing power to the present. When the consumer's borrowing capacity is fully exhausted, a dangerous contraction in demand must follow, as wages have not kept pace with productivity."

— Adapted from a commercial bank circular, 1927

Which of the following developments in the late 1920s most directly represents the culmination of the economic vulnerability described in the excerpt?

  1. A drop in consumer demand as personal debt limits were reached, which left manufacturers with unsold inventories.Cevap
  2. B
    The immediate enactment of New Deal reforms that restricted consumer credit and restructured commercial banks.
  3. C
    The complete withdrawal of United States businesses from international trade due to absolute isolationist policies.
  4. D
    A sudden federal mandate that abolished installment buying to enforce strict laissez-faire capitalism.

Cevap

A drop in consumer demand as personal debt limits were reached, which left manufacturers with unsold inventories.
The correct answer is correct because the widespread adoption of installment plans allowed consumers to buy goods on credit, temporarily hiding the fact that wages were not rising fast enough to purchase the increasing volume of factory output. Once consumers reached their debt limits, consumer demand dropped sharply, leading to industrial overproduction, business cutbacks, and layoffs, which accelerated the onset of the Great Depression.

Adım Adım Çözüm

1
Analyze the stimulus document for key economic arguments.
The excerpt argues that installment credit temporarily sustained high demand for industrial goods, but because real wages did not rise proportionally, consumer borrowing limits would eventually cap demand and trigger a contraction.
To identify the core argument of the author regarding consumer credit and purchasing power.
2
Relate the author's warning to historical events of the late 1920s.
By 1929, consumer debt reached unsustainable levels, leading to a sharp drop in consumer spending. Consequently, industries faced overproduction, leading to production cutbacks and rising unemployment.
To connect the theoretical warning in the stimulus to the actual progression of the economic downturn.
3
Evaluate the choices to find the one that matches this economic pattern.
The option describing a drop in consumer demand and resulting unsold inventories matches the transition from credit expansion to credit exhaustion and underconsumption.
To select the option that accurately describes the historical outcome of the described economic vulnerability.

Anahtar Kavram

Underconsumption and consumer credit exhaustion as structural causes of the Great Depression.
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Konular

Causes of the Great Depression

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