Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Question
Chapter ST6, Problem 1CQ
To determine
The stock market crash in 1929.
Expert Solution & Answer
Explanation of Solution
During 1920s, the stock market grows up rapidly. It hits the history of growth and achieves its peak level. Due to this rapid growth, many normal consumers will bring a large number of stocks. This is because they expected a huge profit from it. However, they do not have an adequate cash balance with them to purchase it. Then they buy it from its margin and take loan from the banks or some from the brokers. However, these excess flow of money in the economy will force the Federal Reserve to increase the interest rate and to protect the gold standard in the bank of Country E to raise their rates. The Wall Street journal makes features about the marginal buyers of stock, Leading to create a panic situation and form a bear market. These worsen the situations and lead to a stock market crash. This is considered as a main reason of great depression in Country U.
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Chapter ST6 Solutions
Economics: Private and Public Choice
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