A Level History - America - Practice Exam

What led to the economic crash of 1873?

1. Reconstruction policies

2. Decline in European investments

3. Overproduction of goods

4. Increased military spending

The correct answer is: Decline in European investments

The economic crash of 1873 was primarily influenced by a combination of factors, among which the decline in European investments played a significant role. Following the Civil War, the United States experienced rapid industrial growth and expansion into new territories, which attracted substantial foreign investment, particularly from Europe. However, by the early 1870s, several factors, including the economic instability in Europe and the effects of the Franco-Prussian War, led to a reduction in these investments. The withdrawal of European capital hindered the financing of American enterprises, particularly in sectors like railroads and other infrastructure projects that had been heavily reliant on foreign funding. This sudden lack of resources created a ripple effect, causing businesses to fail and financial institutions to collapse, ultimately leading to the broader economic downturn known as the Long Depression that began in 1873. While other factors such as overproduction of goods and increased military spending contributed to the economic climate of the time, the direct link to the crash was indeed tied to the decline in European investments, which significantly destabilized the economic framework that had previously enabled growth.