Stock Market Crash

Definition

A stock market crash is a sudden and dramatic decline in stock prices across the stock market, often resulting in significant financial losses for investors. It is a key event that marked the beginning of the Great Depression in the United States.

5 Must Know Facts For Your Next Test

1. The stock market crash of 1929 was triggered by a combination of factors, including overvalued stocks, excessive speculation, and the unequal distribution of wealth in the 1920s.
2. On Black Tuesday, October 29, 1929, the stock market lost over 12% of its value in a single day, leading to a massive sell-off and the collapse of many investors.
3. The stock market crash wiped out billions of dollars in wealth, leading to a loss of consumer confidence and a sharp decline in spending, which in turn led to a severe economic downturn.
4. The widespread use of margin trading, where investors borrowed money to purchase stocks, amplified the losses and contributed to the severity of the crash.
5. The stock market crash of 1929 was a key event that ushered in the Great Depression, a prolonged period of economic hardship that lasted for over a decade and had far-reaching consequences for the United States.

Review Questions

• Describe the key factors that contributed to the stock market crash of 1929.
  • The stock market crash of 1929 was triggered by a combination of factors, including overvalued stocks, excessive speculation, and the unequal distribution of wealth in the 1920s. The widespread use of margin trading, where investors borrowed money to purchase stocks, amplified the losses and contributed to the severity of the crash. These factors created a bubble in the stock market that eventually burst, leading to a massive sell-off and the collapse of many investors.
• Explain the impact of the stock market crash on the broader economy and the onset of the Great Depression.
  • The stock market crash of 1929 had a profound impact on the broader economy, leading to a severe economic downturn that ushered in the Great Depression. The crash wiped out billions of dollars in wealth, leading to a loss of consumer confidence and a sharp decline in spending. This, in turn, led to a reduction in industrial output, high unemployment, and widespread poverty. The Great Depression lasted for over a decade and had far-reaching consequences for the United States, including the implementation of new government policies and programs aimed at stabilizing the economy and preventing similar crises in the future.
• Analyze the role of margin trading in exacerbating the stock market crash and its contribution to the onset of the Great Depression.
  • The widespread use of margin trading, where investors borrowed money to purchase stocks, was a significant contributing factor to the severity of the stock market crash of 1929. When the market began to decline, these highly leveraged investors were forced to sell their stocks to pay back their loans, further driving down prices and leading to a cascading effect. This amplification of losses through margin trading not only worsened the immediate impact of the crash but also played a crucial role in the onset of the Great Depression. The collapse of the stock market and the resulting loss of wealth led to a sharp decline in consumer spending, which in turn led to a reduction in industrial output and high unemployment, ultimately plunging the country into a prolonged economic downturn.

Related terms

Black Tuesday:

The date of the most devastating stock market crash in U.S. history, October 29, 1929, when the stock market lost over 12% of its value in a single day.

Margin Trading: The practice of using borrowed money to purchase stocks, which can amplify both gains and losses, and was a contributing factor to the stock market crash.

Great Depression:

The severe economic downturn that followed the stock market crash of 1929, lasting for over a decade and leading to high unemployment, reduced industrial output, and widespread poverty.