SAT Subject US History Practice Question 1094: Answer and Explanation

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Question: 1094

1. A major cause of the Depression of 1929 was

A. too few dollars in circulation.
B. overproduction and overconsumption of goods, creating a shortage of goods.
C. overproduction and underconsumption of goods, causing the prices of goods to decrease.
D. an increase in the number of exports.
E. low tariffs.

Correct Answer: C

Explanation:

The Depression of 1929 was caused by too many goods (overproduction) being available without enough people willing to buy them (underconsumption). This led to falling prices. Too many dollars in circulation leads to inflation, but there are too few dollars in circulation during a depression. Overproduction and overconsumption are mutually exclusive; that is, overconsumption would mean that people would buy all the goods being produced. If goods are being exported, then goods are being sold. This is healthy for an economy. The tariffs (taxes on imports) were high at this time, which led to other nations keeping out U.S. goods from their countries, contributing to the Depression.

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