Multiple choice

Buying on margin contributed to the stock market crash in 1929 because it

  1. required investors to purchase onlyhigh risk,violating stock

  2. impose high interest rates that discourages trading

  3. Prevented traders from learning the true financial state

  4. allowed traders to pay for stock with projected profits
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Buying on margin meant investors borrowed money to purchase stocks, using the stocks as collateral. When stock prices fell, brokers issued margin calls requiring investors to either provide more cash or sell their stocks at a loss, accelerating the crash. This created a fragile market vulnerable to panic selling.

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