Question

How did the unstable economy in the 1920s contribute to the Great Depression?

Answer 1

In the 20's the U.S. was trying "to be the world's banker, food producer, and manufacturer, but to buy as little as possible from the world in return." This attempt to have a constant favorable trade balance wouldn't succeed for long. The U.S. maintained high trade barriers to protect American business, but the U.S. wouldn't buy from our European counterparts, so there's no way for them to buy from the Americans, or pay interest on U.S. loans. The weakness of the international economy certainly contributed to the Great Depression. Europe was reliant upon U.S. loans to buy U.S. goods, and the U.S. needed Europe to buy these goods to prosper. By the year 1929, 10% of American gross national product went into exports. When the foreign countries became no longer able to buy U.S. goods, U.S. exports fell 30% overnight. That $1.5 billion of foreign sales lost between 1929 to 1933 was fully one-eighth of all lost American sales in the early years of the depression.