USA HISTORY

Detailed explanation-1: -According to underconsumption theories, such deficient consumption leads either to goods being able to be sold only at below-normal rates of profit, or to goods not being able to be sold at all. These effects are seen as leading in turn to cutbacks in production and increases in unemployment.

Detailed explanation-2: -An example of underconsumption is the automobile industry during the Great Depression. During the 1920s, increases in disposable income and the new affordability of automobiles resulted in more people purchasing cars. Increased demand led to the creation of a large number of independent auto dealers and manufacturers.

Detailed explanation-3: -Overproduction and underconsumption of goods Businesses started to produce more than there was a demand for, which caused them to sell their products and services at a loss. This caused severe deflation, during the Great Depression.

Detailed explanation-4: -The real problem when goods lie on the shelves is that no-one can afford to buy the commodities; in other words “over-production” should really be called “under-consumption”. In another sense however, the term “overproduction” is valid; but it is not goods and services which have been over-produced, but capital.