Question

The Great Depression had several causes, including:

*Buying on Margin
*Speculation
*Installment Plan
Organize the list above in order of importance (label each answer with #1, #2, #3). For your answer, write out the definition of each term AND its significance (how it led to the Great Depression).

Answer 1

1. Speculation was the main cause. The overall feeling of Wall Street was positive and it had entered a "Bull Market" (when prices of stocks have an upward trend). However, this was not justified as the performance of enterprises was not that good (mild recession of 1929).
2. Due to the "Bull Stock Market", everyone, from rich businessmen to low paid workers were entering the stock market. This second group was "buying on margin", or getting loans with the hope that its returns will exceed the interest rates.
3. Due to the rise of the economy, people were starting to buy things on an Installment Plan, delaying payments and accumulating debt. This heavily affected once layoffs started due to the economic crisis.