Question

during the 1920s, many americans believed that investing in the stock market was a quick way to new wealth. people often bought stocks on credit. banks usually continued to risk funds, encouraged this speculation by offering loans for stock purchases. when stock prices began to fall in 1929, investors rushed to sell, causing the market to collapse. many banks failed and millions of people lost their savings, triggering widespread economic hardship.
source: adapted from david m. kennedy, freedom from fear: the american people in depression and war, 1999.
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based on the excerpt, how did stock market speculation contribute to the start of the great depression?
options:

• it created overconfidence and risky investments that collapsed when stock prices fell.
• it forced banks to close due to a lack of public interest in borrowing money.
• it encouraged people to save money rather than invest in businesses.
• it caused the government to increase tariffs on imported goods.

clear all

Explanation:

The excerpt says people were overconfident in the stock market (bought stocks on credit, banks offered loans for purchases), then the market crashed. The option "It created overconfidence and risky investments that collapsed when stock prices fell" matches this. Other options: lack of public interest in borrowing (not supported), saving instead of investing (opposite, people invested), tariff increase (not related to speculation).

Answer:

The correct option is the one stating: "It created overconfidence and risky investments that collapsed when stock prices fell." (The option with this text, likely the first radio button option shown).