Stock Crashes

Question 1

What event triggered the Great Depression in 1929?

Answer 1

The stock market crash on Black Thursday, October 24, 1929.

Question 2

During the 1920s, how much did the Dow Jones increase before the 1929 crash?

Answer 2

The Dow Jones increased by 488%.

Question 3

What was one major cause of the 1929 stock market crash?

Answer 3

Excessive speculation and buying on margin, with investors borrowing heavily to invest.

Question 4

What percentage of American banks failed during the Great Depression?

Answer 4

Approximately 9,000 banks failed.

Question 5

What organization was created after the 1929 crash to insure bank deposits?

Answer 5

The Federal Deposit Insurance Corporation (FDIC).

Question 6

Define ‘buying on margin’.

Answer 6

Borrowing money to invest in stocks, allowing investors to control large amounts with little personal capital.

Question 7

What economic issue followed the 1973 Oil Crisis?

Answer 7

Stagflation, a combination of stagnation and high inflation.

Question 8

Which organization led the oil embargo in 1973?

Answer 8

The Organization of the Petroleum Exporting Countries (OPEC).

Question 9

How much did oil prices increase due to the 1973 embargo?

Answer 9

Oil prices quadrupled, increasing from $3 to $12 per barrel.

Question 10

What economic term describes a period of high inflation and low growth?

Answer 10

Stagflation.

Question 11

What caused the 1987 ‘Black Monday’ crash?

Answer 11

Programmed trading algorithms created a feedback loop of automated selling.

Question 12

What percentage did the Dow Jones drop on Black Monday in 1987?

Answer 12

The Dow Jones dropped by 22% in a single day.

Question 13

What policy did the Federal Reserve use to stabilize markets after Black Monday in 1987?

Answer 13

The Fed injected liquidity and lowered interest rates.

Question 14

What mechanism was introduced after the 1987 crash to prevent rapid market drops?

Answer 14

Circuit breakers, which pause trading after severe losses.

Question 15

Define the ‘Dot-Com Bubble’.

Answer 15

A period in the late 1990s marked by excessive investment in internet-based companies, leading to a market bubble.

Question 16

By how much did the Nasdaq index increase during the Dot-Com Bubble?

Answer 16

The Nasdaq increased by 2,700% during the 1990s.

Question 17

Why did many Dot-Com companies fail after the bubble burst in 2000?

Answer 17

Most lacked profitable business models and were overvalued.

Question 18

What was the main reason for the 2008 financial crisis?

Answer 18

Risky subprime mortgages and the bundling of these loans into complex financial products.

Question 19

What are ‘mortgage-backed securities’ (MBS)?

Answer 19

Financial products created by pooling mortgages and selling them as investments.

Question 20

What was the consequence of the decline in U.S. housing prices starting in 2006?

Answer 20

Massive losses for banks holding mortgage-backed securities, triggering a financial crisis.

Question 21

Which major financial institution failed in September 2008, marking a peak in the financial crisis?

Answer 21

Lehman Brothers.

Question 22

What action did central banks take to address the 2008 financial crisis?

Answer 22

They reduced interest rates and injected liquidity to stabilize the economy.

Question 23

Why were circuit breakers introduced in the stock market?

Answer 23

To halt trading during sharp declines, preventing panic-driven losses.

Question 24

Fill in the blank: The _______ was created after the 1929 crash to insure deposits.

Answer 24

FDIC (Federal Deposit Insurance Corporation).

Question 25

Which economic policy response helped the U.S. recover from the Great Depression?

Answer 25

The New Deal, introduced by President Franklin D. Roosevelt.

Question 26

What was the purpose of the New Deal?

Answer 26

To implement economic and social reforms to revitalize the U.S. economy.

Question 27

What financial instrument used in the 2008 crisis combined various loans into one security?

Answer 27

Collateralized Debt Obligations (CDOs).

Question 28

How did the 2008 crisis affect global financial institutions?

Answer 28

It caused many to suffer losses, some failing completely due to exposure to toxic assets.

Question 29

What role did the Federal Reserve play in the 2008 crisis response?

Answer 29

The Fed lowered interest rates to nearly zero and injected massive liquidity.

Question 30

What economic lesson can be drawn from studying past stock market crashes?

Answer 30

The importance of regulation, prudent investment, and recognizing speculative bubbles.