Cause and Effect in U.S. Economic History from 1899 to the Present - SAT Subject Test in United States History

FDR's New Deal program was a massive economic undertaking that focused on three major areas (called the three R's, for simplicity): Relief, for the poor and unemployed; Recovery, for the depressed economy; Reform, of the financial and political system to ensure there would not be a repeat of the Great Depression. It is generally considered a turning point in American history when the bulk of the American people began to believe that Government direct intervention in the economy was a positive, not a negative. For the Democratic Party it ushered in an unprecedented level of popularity - propelling them to victory in seven of the next nine elections. For the Republican Party, it caused fracturing and realignment. It greatly expanded Social Security programs, but what it did not do is turn America into a welfare state. Most historians agree that America is too ruggedly "individualistic" for a true welfare state to govern - as has been evidence in the recent debate over health care in the Twenty-First Century.

The immediate cause of the Great Depression was the stock market crash of Black Tuesday, October 24, 1929. Many factors contributed to the worldwide crisis, but World War I debts were paid off as scheduled and the years following the 1919 Armistice were actually an economic boom time.

The El Niño–Southern Oscillation is a band of warm ocean water that develops off the western coast of South America and has been known to cause climatic change across the Pacific Ocean, but not the plains of America and Canada.

Historians generally find it impossible to identify just one or two causes for the Stock Market crash of 1929 and the subsequent Great Depression. So a simple explanation is difficult, however the following factors were all relevant and need to be understood for the test: A weak banking system that did not garner consumer confidence caused many Americans to rush to the banks to withdraw their money the moment the crisis began causing rapid deterioration; A crippling tariff system that was closing the United States off to profitable trade with Europe; Far too much stock and property purchased on margin or credit (similar reasons to our modern recession); A complete lack of diversity in the American economy, as the industrial and car manufacturing industries were dwindling their was nothing rising to fill the gap, leading to widespread unemployment; Overproduction of crops causing prices to drop and farmers to be unable to make ends meet. Therefore we understand that there was no shortage of crops nor rapid food price inflation, quite the opposite. It is important to remember that there was no one single cause of the Great Depression, but rather it was a combination of several factors.

The Fed did in fact increase the interest rate in 1928. This led to a decrease in the available credit supply, because businesses would now have to borrow at higher interest rates.

All other answer choices are false. The stock market crash, even though much talked about, only effected the loss of 10% of all wealth. The bigger issue here was the lack of trust in banking and government that came from the crash. America did eventually go off the gold standard. Commodity prices decreased because of a lack of demand. Finally, the International Trade Organization wasn't created until 1945.

As World War Two began to enlist more and more men into service, including the draft, the women were left without any means of support. Simultaneously, the push for munitions to supply the war efforts began to reach a higher level of demand. The combination of these two causes allowed women to easily fill the gaps left behind by the departing workforce into battle.

The Smoot-Hawley Tariff Act was passed in 1930 by the Hoover administration. It was designed to protect American agriculture and industry against foreign competition, but the overall effect was profoundly negative for the United States. The act set record high tariff rates on several thousand goods and greatly discouraged trade with Europe and Asia. United States’ overall exports and imports fell by more than half almost immediately. This heightened the suffering felt during the Great Depression.

The Agricultural Marketing Act of 1929 was an attempt by President Hoover to ensure the prosperity of the farming industry in uncertain times. Prior to the Act, crop prices had been spiraling downwards and forcing many farmers to go out of business. The Act gave the Federal government mandate to buy up surplus crops. For a short time this stabilized crop prices, but it eventually led to an overreliance on Federal support among the farming industry which helped contribute to the food crisis of the early 1930s—all the food was being bought and stored in warehouses, as opposed to sold or distributed to the poor. Historians generally consider the attempt to be morally sound, but the execution of the program to be disastrous. It was eventually improved upon by the Agricultural Administration Act that was enacted during Roosevelt’s early days in office.

Herbert Hoover was President for the first three and a half years of the Depression. He was widely criticized for his slow reaction, then not reacting strongly enough as it became obvious that the nation was falling further and further into economic decline.

In what became known as the run on banks, many people rushed to their banks to withdraw their money, only to find the bank had no money to give them. Banks do not keep anywhere near enough money to cover the value of all their accounts, so after the first wave of people the banks had no more money to hand out, and due to defaulting loans and the market crash, had no money coming in. This meant many banks went under and the account holders would not get back the money they had deposited.

Most of the industrial base in America had, at this point, been built at least 30 to 40 years earlier. This meant that most of the technology in the industrial space was very old and outdated. This coupled with the toll the years and constant ware that the equipment and the buildings themselves had been through, and it helped to cause a massive slowdown in industrial output as the system ground down.

During the 1920s, the country was prosperous mainly because of American goods that were being produced within the country. America did not have to do as much trading with other countries to get the products they needed because they were being created on American soil. People also wanted to buy American goods.

Although the Smoot-Hawley Tariff was well-intentioned, it was a major contributing factor to the Great Depression. Without going into needlessly complicated detail, foreign trade is a major component of basically every developed economy—the U.S. in 1930 was no exception. The Tariff (because it artificially increased the prices of many imported goods) caused a major slump in foreign trade, leading (in part) to the Great Depression.