What was the main reason Australia's economy collapsed right before the Great Depression began?

• A. A sharp decline in commodity export prices and heavy foreign debt
• B. A sudden increase in government spending on infrastructure
• C. A banking crisis caused by subprime mortgage defaults
• D. A collapse in the domestic housing market due to speculative bubbles

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the context of Australia's economy before the Great Depression, focusing on its main economic activities and vulnerabilities, particularly its reliance on commodity exports.
2. Step 2: Identify the key factors that could lead to an economic collapse, such as external shocks (e.g., changes in global commodity prices) and internal financial issues (e.g., debt levels or banking crises).
3. Step 3: Analyze historical data showing that Australia's economy was heavily dependent on exporting commodities, and that a sharp decline in commodity prices would reduce national income significantly.
4. Step 4: Recognize that Australia had substantial foreign debt at the time, which would exacerbate the economic downturn when export revenues fell, making it difficult to service debt obligations.
5. Step 5: Conclude that the main reason for the collapse was the combination of a sharp decline in commodity export prices and heavy foreign debt, rather than factors like increased government spending, subprime mortgage defaults, or a domestic housing market collapse.