Question

risky investing practices overproduction lax government regulation overextension of credit rubric for short answers (5 points) 4 point answer using evidence to show understanding of the information from the question, with accurate details and clear explanation. 1 point use three to five complete sentences to answer your question. which two factors mentioned above contributed to the beginning of the great depression in america? explain how these factors led to the economic crisis. provide your response in 3 - 5 complete sentences, using examples to support your explanation. (hint: use your causes and effects in your notes to help) (5 points)

Explanation:

Two key factors that sparked the U.S. Great Depression are risky investing practices and overextension of credit. Risky investing, specifically the widespread use of buying stocks on margin (borrowing up to 90% of a stock's value), created an inflated stock market bubble; when stock prices began to fall in 1929, investors could not repay their loans, triggering mass sell-offs and the 1929 stock market crash. Overextension of credit also played a critical role: banks freely offered loans for stock purchases and consumer goods without strict lending standards, and when the market crashed, both individual borrowers and banks faced insolvency, as banks lost billions in unpaid loans and panicked depositors rushed to withdraw their savings, leading to widespread bank failures that collapsed the financial system and erased household wealth. These two factors combined to destroy consumer and business confidence, freeze economic activity, and launch the decade-long Great Depression.

Answer:

Risky investing practices and overextension of credit were two major contributors to the start of the Great Depression in America. Buying stocks on margin, where investors borrowed most of the money to purchase shares, created an unstable stock market bubble; when prices plummeted in 1929, investors could not cover their loan debts, causing a catastrophic market crash that wiped out billions in wealth. At the same time, overextension of credit allowed unregulated banks to lend recklessly for both stock investments and consumer purchases, with no safeguards for repayment; after the crash, unpaid loans and mass bank runs led to thousands of bank failures, eliminating access to capital for businesses and destroying household savings, which crushed consumer spending and pushed the U.S. into a deep, prolonged economic crisis.