Ch. 12 EH

What signs indicated an impending economic crisis in the US in 1928?

Prices began to fall, agriculture came to a standstill, and the construction sector slowed down.

What continued despite the signs of an economic crisis in 1928?

Profits continued to grow and access to credit was not expensive.

What role did speculative investments play before the 1929 crash?

Speculative investments abounded on the stock market, driven by big operators and easy credit policies.

What were the three factors driving the stock exchange system before the crash?

Speculative actions of big operators, easy credit policies, and new money management systems like investment trusts.

What was a major weakness in the US credit system leading to the 1929 crash?

Presence of credit institutions that were not controlled by the Federal Reserve.

What did the perception of a healthy economy relate to during the stock market expansion?

The value of share prices was not linked to the ability of companies to produce profits.

What was the outcome of the Wall Street crash in 1929?

It led to a significant decline in stock prices and triggered the Great Depression.

What action did the Fed take to control speculation in the stock market?

The Fed raised interest rates.

What was the immediate consequence of the stock market crash in terms of international trade?

International trade was reduced by 70%.

How did deflation impact industrial countries during the crisis?

It discouraged investment and postponed consumption.

What was the effect of deflation on primary goods-producing countries?

Export revenues plummeted, making it difficult to pay foreign debt.

What did the restrictive monetary policies after the crash lead to?

Liquidity crises and multiple bank failures.

What major event intensified the European crisis in 1931?

The bankruptcy of Austria Credit Anstalt and the German currency crisis.

What did Great Britain do in September 1931 regarding the gold standard?

Great Britain abandoned the gold standard.

What was one of the protective measures countries took during the crisis?

Introduction of new tariffs leading to protectionism.

What major effect did the Smoot-Hawley Tariff Act have?

It disrupted international trade flows and hindered economic recovery.

What was F.D. Roosevelt's realization about the economic situation?

He realized the scale of poverty and increased taxation on the highest incomes.

What was the key problem that led to a lack of confidence in the financial system?

Unemployment became the most serious problem.

What was one of President Hoover's significant reactions to unemployment?

He created the Reconstruction Finance Corporation to help banks.

How did Hoover's policies impact smaller banks?

The resources allocated were inadequate, leading to smaller banks failing.

What happened at the London Economic and Monetary Conference in 1933?

It resulted in a failed attempt to stabilize major currencies.

What did Chancellor Bruning of Germany do in response to the crisis?

He suspended the gold standard and imposed strict controls on currency and capital.

How did the crisis of 1929 affect market mechanisms according to the emerging concept of the welfare state?

It revealed imperfections in the functioning of market mechanisms, necessitating state intervention.

What was John Maynard Keynes's argument against Say's Law?

He argued it does not function in a crisis context.

What were the proposed effects of implementing Keynesian countercyclical policies?

Public spending would become the engine of economic recovery, supporting wages, consumption, and profits.

What concept refers to the mutual support of wages, consumption, and profits?

Keynesian multiplier.

What was the perception of the capability of debtors during the economic crisis?

Deflation weakened their ability to repay debts.

What did the restrictive policies lead to in terms of trade?

They had negative effects on international trade.

What severe consequence did the downturn in the automobile industry have in 1929?

Production collapsed dramatically from 440,000 units in August to 92,500 units in December.

What downstream effects resulted from the stock market collapse?

Declining inventories and a dramatic collapse in production.

What did the liquidity race initiated by companies result in?

Many companies started to curtail their spending.