Why was Germany particularly susceptible to a downturn in the economy during the early 20th century?

• A. Germany had a highly diversified economy with strong domestic demand, which protected it from global downturns.
• B. Germany's economy was primarily agricultural, so it was unaffected by changes in global industrial markets.
• C. Germany was heavily dependent on foreign loans and investment, making it vulnerable when global financial conditions worsened.
• D. Germany maintained strict government controls over all industries, preventing any economic instability.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the historical context of Germany's economy in the early 20th century, particularly after World War I, when the country faced significant economic challenges.
2. Step 2: Recognize that Germany's economy was heavily reliant on foreign loans and investments, especially from countries like the United States, to finance reconstruction and industrial growth.
3. Step 3: Analyze how this dependence on external capital made Germany vulnerable to changes in global financial conditions, such as tightening credit or withdrawal of loans during economic downturns.
4. Step 4: Connect the vulnerability to the global economic environment, noting that when the international economy worsened (e.g., during the Great Depression), Germany's access to foreign funds diminished sharply.
5. Step 5: Conclude that this loss of foreign capital led to a severe economic downturn in Germany, as domestic industries and government finances were unable to sustain growth without external support.