Author Question: Why was the stock market crash of 1929 a disaster for the economy? (a) Through the wealth effect, ... (Read 117 times)

karateprodigy · **on:** Jun 30, 2018

Why was the stock market crash of 1929 a disaster for the economy?

(a) Through the wealth effect, investors lost paper wealth and consequently
reduced their spending on goods and services. This led to cutbacks in
production and jobs.
(b) Businessmen became pessimistic about the future and reduced spending on
plants and equipment, thus causing reduced production and increased layoffs
in the capital-goods sector of the economy.
(c) The crash revealed a flawed structure of credit and weak system of banks
and other financial institutions in the U.S.
(d) All of the above are correct

Question 2

Capital deepening occurs when

a. the per capita income increases over time.
b. real GNP increases over time.
c. the capital/labor ratio does not change.
d. the capital/labor ratio increases over time.