Question

question 12 of 20

one cause of the great depression was the fact that the financial system:

a. depended on insurance from the federal government.
b. invested heavily in speculation and the stock market.
c. invested in farming technologies that led to over-farming.
d. could not meet the demand of businesses for more loans.

Explanation:

Analyze the question stem

The question asks for a cause of the Great Depression related to the financial system.

Evaluate Option A

Option A states the system depended on federal government insurance. Before the Great Depression, there was no federal deposit insurance (like the FDIC, which was created during the New Deal in 1933). Thus, this statement is historically inaccurate.

Evaluate Option B

Option B states the financial system invested heavily in speculation and the stock market. During the 1920s, banks used depositors' money to invest in highly speculative stock market assets and offered easy credit (such as buying on margin), which directly contributed to the 1929 crash and subsequent banking collapses. This aligns with 1920s Economic Weaknesses.

Evaluate Option C

Option C states the system invested in farming technologies leading to over-farming. While agricultural overproduction was an issue, it was not the primary systemic failure of the financial system that triggered the Great Depression.

Evaluate Option D

Option D states the system could not meet the demand of businesses for more loans. In reality, credit was overly extended and easy to obtain during the 1920s, rather than being unavailable.

Formulate the final conclusion

Using the Great Depression Economics framework, the heavy involvement of financial institutions in speculative stock market investments and margin lending was a central structural cause of the financial collapse. Therefore, Option B is the correct answer.

Answer:

• (A) depended on insurance from the federal government.
• (B) invested heavily in speculation and the stock market. (Correct answer)
• (C) invested in farming technologies that led to over-farming.
• (D) could not meet the demand of businesses for more loans.