During the 1920s, what financial practice contributed to creating a sense of prosperity before the Great Crash?

Buying stocks on margin was a financial practice that significantly contributed to the sense of prosperity during the 1920s leading up to the Great Crash. This method allowed investors to purchase more stocks than they could afford by borrowing money from brokers. As a result, many individuals entered the stock market, driving prices up and creating a perception of a booming economy. The rising stock prices led people to believe that the market would continue to grow, encouraging more investments and speculative behavior.

This practice created a bubble, as it relied on continuous market growth and investments from new buyers. When the market began to decline in late 1929, those who had bought stocks on margin faced substantial losses, exacerbating the economic downturn. The reliance on borrowed money meant that as prices fell, many investors could not repay their debts, which further deepened the financial crisis. Thus, while buying stocks on margin contributed to a temporary sense of prosperity during the Roaring Twenties, it ultimately set the stage for the catastrophic financial collapse that followed.