Question

What was the main problem with 'buying on margin' that contributed to the 1929 stock market crash?

a
It made stocks too expensive for ordinary people
b
If stock prices fell, investors couldn't repay their loans to banks
c
It caused too many people to become wealthy too quickly
d
It prevented foreign countries from investing in American companies

Answer 1

b

Buying on margin meant investors borrowed most of a stock's purchase price. If prices fell, margin calls forced sales and borrowers couldn't repay loans, amplifying the market crash and causing bank losses.