Question

What was the main cause of the 'Great Depression' in 1929?

• A. Excessive production in agricultural sector
• B. Excessive investment
• C. Privatization of banks
• D. Increase in the number of industries

Hint:

The main cause of the Great Depression was speculative investment in the stock market, leading to the 1929 crash and a worldwide economic collapse.

Answer 1

The Correct Option is B

The Great Depression, which began in 1929, was the most severe and prolonged economic downturn in modern history. It started in the United States and quickly spread across the world. The main cause was excessive and speculative investment in the stock market, which led to a massive financial bubble. Key Reasons:

1. Excessive Investment and Speculation:
In the 1920s, known as the “Roaring Twenties,” many people invested heavily in the stock market, often borrowing money to buy shares (a practice known as buying on margin). Stock prices rose far beyond their actual value, creating an unsustainable bubble.
2. Stock Market Crash of 1929:
On October 29, 1929 (also known as Black Tuesday), the stock market crashed. Share prices plummeted, and investors lost billions of dollars overnight. This triggered a financial panic and loss of confidence.
3. Bank Failures and Credit Crunch:
After the crash, many banks failed as people rushed to withdraw their money. The collapse of the banking system further deepened the economic crisis.
4. Global Impact:
Since the U.S. economy was closely tied to global markets through trade and investment, the depression spread worldwide.
Why Other Options Are Incorrect:
- (A) Excessive production in agriculture:
While overproduction did lead to falling prices and rural distress, it was not the primary cause of the global depression. - (C) Privatization of banks:
This was not a significant factor; rather, poor regulation of banks and lack of government intervention contributed more. - (D) Increase in number of industries:
Industrial growth alone does not cause depression—mismanagement, overproduction, and financial instability are the culprits.