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Study Notes

Effect of the Crash in Germany

AQA, Edexcel, OCR

Last updated 12 Apr 2018

Despite the crash being in the United States, Germany lost out heavily in the crash. German Banks had been large investors in US Shares and as a result had lots lots of money in the crash. This huge loss of money causes a banking crisis in Germany.

When a bank loses money in significant quantities, savers begin to worry about access to their money saved in accounts, after all this is what banks loan out and use as investment. If many people in one go start to remove their savings, this is known as a run on the bank. If the bank runs out of money as too many people have withdrawn money, and their investments have not returned money, then they will go bust. Several banks in Germany went out of business this way.

In desperate attempts to avoid going out of business Germany banks started to recall loans from businesses. However, businesses often needed the money they had been loaned by the banks and then went out of business. This reaction to the crash brought about economic collapse in Germany, with many people becoming unemployed.

This rising level of unemployment caused more problems. When people are unemployed, they no longer purchase goods and services in the way the once did, this results in businesses selling and providing fewer goods and services, which leads them to cut back on staffing, or go out of business altogether. The cycle is then repeated over and over,  

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