Which of the following was a contributing factor to the economic climate leading to the Great Depression?

• A. Low taxation
• B. Excessive savings
• C. Buying on credit
• D. Increased production

Answer: (C)

Buying on credit was a significant contributing factor to the economic climate leading to the Great Depression. During the 1920s, there was a cultural shift towards consumerism, where many individuals began purchasing goods on credit, leading to an unsustainable level of debt. This practice allowed consumers to acquire products without immediate payment, resulting in an inflated demand for goods. However, as the economy slowed and financial institutions began to fail, many individuals found themselves unable to meet their debt obligations, which led to widespread financial distress and a decrease in consumer spending. The subsequent decline in consumer confidence and the inability to repay loans contributed significantly to the economic downturn that characterized the Great Depression.

In contrast, low taxation would not be seen as a direct cause of the economic downturn but rather as a factor that could be beneficial in promoting spending and investment. Excessive savings, while seemingly prudent, can indicate a lack of consumer confidence and reduced spending, which may lead to economic stagnation. Increased production before the Great Depression led to an over-supply of goods, but when consumer demand fell due to rising debts and economic uncertainty, it resulted in significant inventory issues and layoffs, further deepening the economic crisis.