Florida Teacher Certification Examinations (FTCE) Social Science Practice Test

Which of the following is the BEST choice as the major cause of the Great Depression?

1. A. Military unrest in Europe

2. B. The Cold War

3. C. Extensive stock market speculation

4. D. Weak unions

The correct answer is: C. Extensive stock market speculation

The Great Depression, which began in 1929, was significantly influenced by extensive stock market speculation, making this the best choice for its major cause. In the years leading up to the Depression, the stock market experienced rapid and often irrational growth, fueled by speculative investments where individuals and institutions bought stocks with the expectation that their prices would continue to rise without a solid basis in the companies' economic performances. This speculative bubble led to unsustainable valuations. When the market began to falter in late October 1929, panic ensued, resulting in one of the largest stock market crashes in history. The sudden loss of wealth not only devastated individual investors but also led to a significant contraction in consumer spending and business investments, which exacerbated economic decline. The collapse also affected banks, many of which had invested heavily in the stock market or issued loans for stock purchases, leading to bank failures and a further tightening of credit. This correlation between stock market speculation and the subsequent financial collapse provides a clear understanding of why this factor stands out as a primary cause of the Great Depression. The other options, while they may have contributed to various economic conditions, do not hold the same direct correlation to the onset of the Great Depression as the speculative activities in the stock market.