Life in the Roaring Twenties Questions and Answers

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Explain how the economic prosperity of the 1920's was not truly built on a strong foundation using the key warning signs leading up to the Depression?

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Warning signs that a recession or depression might be on the way emerged in the late 1920s but were ignored amid a wave of optimism and boosterism.

First, inventories of goods began to rise. This was a loud warning sign, unheeded, that demand was slowing. People simply weren't buying as many cars, refrigerators, sofas, and other consumer goods as they had been earlier in the decade. As inventories piled up, factories would inevitably start producing fewer goods, which would lead to layoffs of workers. These unemployed workers would have less money in their hands to buy goods, so the economic cycle would spiral into a worse situation.

Piles of unsold goods were a drag on the economy. Businesses were selling fewer goods, meaning they too were making less money, suggesting a point would come when they would have to start laying off workers as well.

Second, stock prices began to decline by 1929. This was another very ominous sign. Because of loose (or absent) regulation, people could borrow...

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