Question

What effect did the use of credit have on the economy in the 1920s? it made the economy stronger. it made the economy weaker. it made parts of the economy stronger. it solved the problem of overproduction.

Answer 1

The correct answer is: "it made the economy weaker".

The use of credit flourished in the so-called Roaring Twenties. This scenario allowed the economy to grow much further than what it would be possible considering the amount of resources in hands of the economic agents (households, firms and the public sector).

But this system was much riskier as, while it provided posibilities of high growth rates when the economic conditions were favourable, it led to disproportionate loses when the conditions turned bad.

Answer 2

The correct answer is B) it made the economy weaker.

The effect that the use of credit had on the economy in the 1920s was that it made the economy weaker.

What happened in the 1920s is not complicated to understand. Due to the prosperity in the economy, the so called “Roaring 20’s” consumerism was the constant in the country. Many people began to buy what did not needed but wanted. With the use of credit, families started to buy things for the house, personal care, and new things that were advertised. With credit, they had the opportunity to pay the bills every month. But the problem was that people started to buy things that later they were not capable of paying. Consumers bought a lot of things they could not afford. That is why consumers weakened the economy in the late 1920s.