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Posted on April 15th, 2014, by

3.  Discuss the reasons for the economic prosperity of the 1920s and the causes of the Great Depression and why it was so severe.

The First World War contributed consistently to the economic prosperity of the US because the country invested substantially in the development of its military power that involved the creation of new jobs, construction of new production facilities and contracting many private suppliers to supply weapons and equipment to the US army and foreign armies as well. In addition, European countries needed to recover after the war and the US benefited from the trade with Europe, which imported many American products, until the local industry recovered after the war. At the same time, the domestic economy was boosting because of the growth of the consumption in the US and fast growth in many industries, especially in the housing market.

However, the growth was, to a significant extent, ungrounded. For instance, the housing market bubble in California shattered consistently the financial market of the US, which eventually suffered the rapid downfall of shares on Black Tuesday which marked the beginning of the Great Depression. After that the panic in the financial market provoked the rapid downturn in the US economy, while many companies confronted the problem of overproduction. Customers, in contrast, focused on saving instead of spending. As a result, the Great Depression was the deepest economic crisis so far because the unemployment rate reached 25%, while measures that were traditionally applied in the time of economic crisis did not work anymore.

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