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There were a series of factors that led to the crash of the stock market in 1929. The effect of the crash was significant.
During the 1920s, people were buying a lot of stocks. The stock market was rising, and people expected the market to continue to rise. People often bought stocks without doing much research about the stock or the company the stock represented. People also didn’t pay the full cost of the stock. They bought stocks on margin. This meant they paid about ten percent of the total cost of the stock purchase, and they would gradually pay off the rest of the balance. When professional investors pulled out of the market in September 1929 and as the value of the stocks in the stock market began to fall, brokers began to demand their clients pay the amount they owed in full immediately. People tried to sell their stocks, causing prices to drop further. As a result, the market completely crashed.
This led to the Great Depression. People tried to get money out of their bank accounts, but since the banks had invested in the market also, they didn’t have money in the bank to give to their customers. Thus, banks closed, and many people lost their entire savings because of the market crash and/or the bank failure. Businesses closed down causing unemployment to rise. We had a full-blown crisis on our hands as a result of the stock market crash.
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