Why were many stock prices considered overvalued before the crash?
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Correct answer: Prices rose faster than company profits and real economic strength justified
Many stocks rose because of investor optimism and speculation rather than actual business performance. This created a bubble that became unstable when confidence weakened.
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More Causes of the Great Depression questions
- Which economic problem affected many American farmers during the 1920s before the Great Depression?
- How did unequal distribution of income contribute to the Great Depression?
- What is overproduction in the context of the Great Depression's causes?
- How did consumer credit in the 1920s contribute to economic weakness?
- What happened when many banks failed during the early Great Depression?
- Why did bank runs worsen the financial crisis?