Question

1. Discuss 3 factors that led to the Great Depression. From your perspective, were the strong policies of the New Deal necessary? Explain why or why not.

Answer 1

The 1929 stock-market crash. The U.S. stock market had undergone a historic expansion during the 1920s. As stock prices rose to unprecedented levels, stock market investment came to be seen as an easy way to make money, and even people of ordinary means used much of their disposable income to buy stock or even mortgaged their homes. Hundreds of millions of shares were marginalized by the end of the decade, meaning that their purchase price was financed with loans to be repaid with profits from ever-increasing share prices

Panics in banking and monetary contraction. The United States experienced four extended banking panics between 1930 and 1932, during which large numbers of bank customers, fearful of the solvency of their bank, simultaneously attempted to withdraw their deposits in cash. Ironically, the frequent effect of a banking panic is to bring about the very crisis that panicked customers aim to protect themselves from: a huge panic can ruin even financially healthy banks.

The gold standard Despite its effects on money supply in the U.S., the gold standard unquestionably played a role in spreading the Great Depression from the U.S. to other nations. As the U.S. faced decreasing production and deflation, it continued to run a trade surplus with other countries because Americans purchased less imported products, whereas American exports were comparatively small. Such imbalances resulted in significant foreign gold outflows to the United States , which in turn threatened to devalue the currencies of the countries with depleted gold reserves.

The New Deal created a wide range of federal government programs that sought to provide economic relief to the suffering, regulate the private sector, and grow the economy Roosevelt's New Deal significantly expanded the size and scope of the federal government, fundamentally reshaping American political culture around the principle that the government is responsible for the welfare of the federal government.