The economic practice of buying stocks on credit contributed to the financial collapse during what period?

• A. The Roaring 20s
• B. The Great Depression
• C. The Reconstruction Era
• D. The Industrial Revolution

Answer: (B)

The practice of buying stocks on credit, known as "buying on margin," was a significant factor that contributed to the financial collapse of the stock market in 1929, which preceded the Great Depression. During the Roaring Twenties, there was a speculative bubble as investors were optimistic and heavily invested in the stock market, often using borrowed money to increase their potential gains. This led to inflated stock prices and an unstable market.

When the market began to decline, those who had bought stocks on margin were forced to sell their shares to cover their debts, which further drove down stock prices in a vicious cycle. This panic selling significantly contributed to the financial instability that marked the onset of the Great Depression, resulting in widespread unemployment and economic hardship throughout the 1930s.

In contrast, the other periods mentioned—such as the Reconstruction Era and the Industrial Revolution—were characterized by very different economic circumstances and did not see the same speculative practices in the stock market that led to the financial collapse in the late 1920s. The Roaring Twenties is often associated with the prosperity that preceded this collapse, making the correlation between buying stocks on credit and the financial calamity clearer within the context of the Great Depression.