Question

Explain how uneven distribution of income caused the Great Depression.

Answer 1

The uneven distribution of income during the 1920s, where the rich got richer and the wages of the average worker stagnated, contributed greatly to the Great Depression. A lack of purchasing power among the masses led to overproduction, underconsumption, and the collapse of the stock market as there were no new buyers to sustain it. The subsequent bank failures and loss of savings further deepened the economic crisis.

Step-by-step explanation:

The uneven distribution of income during the 1920s contributed significantly to the Great Depression. As the economy expanded and production increased, wages for the average American worker did not keep pace, leading to a vast gap between the rich and the poor. This growing inequality meant that a majority of American families had insufficient means to participate in the economic prosperity of the era. With the top percentage of wealth-holders unable to sustain consumer demand, the result was a lack of new buyers in the stock market, which, combined with the overextension of credit, led to a catastrophic economic collapse.

As the Depression took hold, widespread unemployment led to severe hardships. Those with little savings quickly faced eviction, hunger, and homelessness, with limited relief available from charities and government programs. The failure of banks exacerbated the situation by erasing life savings, which in turn further suppressed spending and investment, leading to a downward economic spiral. The immense overproduction by U.S. industry, paired with underconsumption due to lack of purchasing power among the masses, resulted in a severe economic downturn that would take years and significant government intervention to recover from.

Answer 2

The uneven distribution of income prior to the Great Depression led to a lack of consumer purchasing power, limited economic participation of the majority, and a ripple effect of defaults after the stock market crash, which together contributed significantly to the economic downturn.

Step-by-step explanation:

The uneven distribution of income during the late 1920s contributed significantly to the onset of the Great Depression. With stagnant wages and a wide wealth gap, the majority of American families, about 80 percent, had little to no savings which affected consumer purchasing power.

The affluent minority had most of the wealth but were insufficient to sustain market demand as buyers. The stock market, dependent on a continuous flow of new buyers and sellers, suffered greatly when there were no new investors to maintain its momentum, leading to market crashes and widespread bank failures.

As the economy slowed, businesses began to lay off workers en masse, resulting in high unemployment and increased pressure on already-strained relief efforts. In rural areas, farmers faired poorly due to crop price collapses and severe droughts, making it impossible for them to maintain their livelihoods or pay mortgages, leading to foreclosures and even greater economic hardship.

The purchasing of goods on credit further complicated the economic predicament. With the job losses that the Depression brought on, many households defaulted on credit payments, causing a ripple effect that forced stores to cut jobs to remain operational. This cycle of overproduction and underconsumption created by the unequal wealth distribution and a lack of consumer spending power ultimately ground the national economy to a halt.