Final answer:
Increasing production in the late 1920s and falling sales led to overproduction and underconsumption, causing unsold goods, falling prices, and unemployment, which contributed to the onset of the Great Depression. Default on credit payments and unequal wealth distribution worsened the situation, resulting in a broad economic collapse.
Step-by-step explanation:
The increasing production in the late 1920s, alongside falling sales, played a significant role in creating the conditions that led to the Great Depression. This era was marked by a manufacturing output that far surpassed the purchasing power of the American public, leading to a surplus of unsold goods. This overproduction coupled with underconsumption meant that prices and profits fell, triggering a reduction in the workforce and a rise in unemployment.
Furthermore, the widespread use of credit to purchase consumer items further exacerbated the situation. When the Depression hit, many households faced job losses and defaulted on credit payments, adversely affecting retail stores which then began laying off more workers to stay afloat. The unequal distribution of wealth also played a crucial role in the onset of the Depression, with most American families having no savings to fall back on, resulting in immediate financial hardship upon job loss.
Keynesian economic principles later revealed that the lack of demand in the economy led to underproduction relative to its potential, in contrast to a diminishment of the economy's capacity to supply goods. The overexpansion of industries, including railroads, and an ongoing agricultural recession, also contributed to the economic downturn that precipitated the Great Depression.