How did the withdrawal of US loans help spread the Great Depression to other parts of the world? Explain with examples.
Generated by claude-sonnet-4-6 · 2026-06-26 13:40 · grounding rag
Model Answer
In the mid-1920s, many countries financed their investments through US loans. When trouble appeared, US overseas lenders panicked and withdrew these loans — from over $1 billion in 1928 to one-quarter of that amount just a year later.
This withdrawal affected the world in different ways:
- In Europe, it caused major bank failures and the collapse of currencies like the British pound sterling.
- In Latin America and elsewhere, it intensified the slump in agricultural and raw material prices.
Additionally, the US doubled import duties to protect its own economy, dealing a further blow to world trade.
Source: The Great Depression, Chapter 3, Section 3.4
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Explanation
- The examiner wants a cause → mechanism → examples structure: why loans were withdrawn → what happened as a result → specific regional examples.
- Always name the two regions given in the textbook (Europe and Latin America) with their specific effects — this earns the split marks.
- The import duty point is a bonus detail that strengthens the answer without padding it.
- Avoid vague phrases like "it affected many countries badly" — be specific as the textbook is.