Why was overoptimism a problem during the Great Depression?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Overoptimism was a problem that helped to cause the Depression.  Once the Depression was in full swing, very few people had too much optimism.

Overoptimism helped to fuel the stock market bubble that led to the crash.  People thought the stock market would go up forever.  Therefore, they put too much money, often borrowed, into the market, causing prices to get too high.  This helped cause the crash.

Once the Depression had started, it is possible to argue that President Hoover and other conservatives were too optimistic.  You can argue that Hoover thought that the economy would fix itself and that there was no need for massive government action.

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