How did stock market speculation contribute to the Great Depression?

Question

A.
It deflated stock prices, forcing the government to buy shares of stock to keep important businesses from failing.

B.
It inflated stock prices, encouraging people to invest their savings in stocks that cost more than they were worth.

C.
It deflated stock prices, making it difficult for entrepreneurs to raise money for their businesses by selling stock.

D.
It inflated stock prices, causing stock prices to rise so high that very few people could invest in the stock market.

Answer 1

The correct answer is:

B. It inflated stock prices, encouraging people to invest their savings in stocks that cost more than they were worth.

During the late 1920s, speculation in the stock market led to inflated stock prices, as investors believed that prices would continue to rise. This resulted in many individuals investing their savings into stocks that were overvalued. When the market eventually crashed in 1929, it triggered widespread financial panic and contributed significantly to the onset of the Great Depression.