Which of the following concepts did NOT contribute to the crash of the stock market during the fall of 1929? A. Excessive regulation of the stock market B. Uneducated speculation on stocks by a...
Which of the following concepts did NOT contribute to the crash of the stock market during the fall of 1929?
A. Excessive regulation of the stock market
B. Uneducated speculation on stocks by a large number of people in an effort to earn a large profit
C. Purchase of stocks on margin
D. Over confidence that stock prices would not decline
E. All of the above are NOT concepts that attributed to the crash of the stock market of 1929.
The correct answer to this question is Option A. There were many factors that contributed to the stock market crash of 1929, but excessive regulation of the stock market was certainly not one of them.
The basic cause of the stock market crash was the fact that prices of stocks went up much higher than they should have. This is typically called a “bubble.” People buy and buy some kind of investment property, causing its price to rise. They expect that its price will continue to rise so they will be able to make money by selling it. Eventually, people realize that prices are too high and they start to sell. This can cause a crash, as happened in 1929.
Options B and D clearly fit this pattern. Uneducated speculators bought and bought, thinking prices would never go down. This caused prices to rise faster and faster. Option C also made it easier for prices to go up because margin buying helped people buy stocks more easily. All of these factors caused the bubble to inflate and helped bring about the crash. Option A, by contrast, did not. The stock market was not heavily regulated and regulation would not be a factor that would be likely to cause a bubble to inflate.