Question

In which of the following ways did the 1920s wealth gap contribute to the start of the Great Depression?

a. The wealth gap led to a decline in stock investment during the 1920s.
b. A concentration of wealth led to less spending across the economy.
c. Many of the rural poor were forced into subsistence farming.
d. The wealth gap led to heavy emigration from the United States and shrinkage of the economy.

Answer 1

Correct answer: b.

A large concentration of income at the top meant many consumers had limited purchasing power, which reduced overall demand for goods. That underconsumption (along with overproduction, credit abuses, and other factors) helped set the stage for the economic collapse of the early 1930s.