(A) Not enough people bought stock
(B) Too many companies sold stock
(C) ** Too many people owed more than the stock was worth and couldn’t repay the loans
(D) Buying on margin improved the economy
EXPLANATIONS BELOW
Concept note-1: -People Bought Stocks With Easy Credit People encouraged by the market’s stability were unafraid of debt. The concept of “buying on margin” allowed ordinary people with little financial acumen to borrow money from their stockbroker and put down as little as 10 percent of the share value.
Concept note-2: -The crash had three main causes: buying on margin, overproduction of goods, and laissez-faire government policies. A month before the crash, the stock market was booming due to strong demand for American goods overseas after World War I.
Concept note-3: -This meant that many investors who had traded on margin were forced to sell off their stocks to pay back their loans – when millions of people were trying to sell stocks at the same time with very few buyers, it caused the prices to fall even more, leading to a bigger stock market crash.
Concept note-4: -The biggest risk from buying on margin is that you can lose much more money than you initially invested. A decline of 50 percent or more from stocks that were half-funded using borrowed funds, equates to a loss of 100 percent or more in your portfolio, plus interest and commissions.