The Economy of the 1920s

The Economy of the 1920s

Business in the 1920s GDP Consumerism Credit

Stock Market 101 Types of Investment Stocks

Gross Domestic Product (GDP): The income and output for a given countries economy. GDP = consumption

+ investments + government spending + (exports-imports)

Gross Domestic Product (GDP): The income and output for a given countries economy. GDP = consumption +

investments + government spending + (exports-imports)

Following World War I the United States entered recession. Recession: A period of

time in which there is a decline in economic trade and prosperity.

Recession = 2 consecutive quarters of falling Gross Domestic Product Where on this chart is there a Recession?

Check Up!

1. Define GDP.

2. Where on this chart is there a Recession?

The Economy of the 1920s

Business in the 1920s GDP Consumerism Credit

Stock Market 101 Types of Investment Stocks

The Economy Recovers

By 1922 the economy recovered and grew until 1928

Production of Consumer Goods increased rapidly

Consumer goods are things that typically have a short life span (last less than 3 years) They are goods not

used to make other goods.

The Economy of the 1920s

Business in the 1920s GDP Consumerism Credit

Stock Market 101 Types of Investment Stocks

A Credit Economy

Americans turned to Credit to buy consumer goods. Credit: An arrangement by which a buyer can

take possession of something now and pay for it later or over time.

A Credit Economy

Americans turned to Credit to buy consumer goods. Credit: An arrangement by which a buyer can

take possession of something now and pay for it later or over time.

Credit was used in the purchases of up to 90% of major durable goods by the end of the 1920s Durable goods are products that have an extended life,

such as a refrigerator, couch, washing machine, radio

The Economy of the 1920s

Business in the 1920s GDP Consumerism Credit

Stock Market 101 Types of Investment Stocks

Investments

Investment: An item that is purchased with the hope that it will generate income or increase in value in the future.

Types of Investments

Investment: An item that is purchased with the hope that it will generate income or increase in value in the future.

Types of Investment Bonds: A loan to a

government or business that is paid back over time plus interest.

Property: Purchase of home, land or real estate with the purpose of later selling for a profit.

Commodities: Food, energy or metals.

Stock: Purchasing a share of ownership of a company.

Check Up!

List the 4 main types of Investments people make.

The Economy of the 1920s

Business in the 1920s GDP Consumerism Credit

Stock Market 101 Types of Investment Stocks

Stocks

Corporation: A business that is owned by multiple people

Examples of Corporations: Facebook, McDonalds, Apple, Walmart, General Electric, Ford Motors

Stocks

Corporation: A business that is owned by multiple people

Stock/Share = Partial ownership of a company

Examples of Corporations: Facebook, McDonalds, Apple, Walmart, General Electric, Ford Motors

Check Up!

List the 4 main types of Investments people make.

What is a corporation?

What is a stock/share?

What’s the benefit of owning a share?

Dividends Some corp. pay

quarterly dividends. Dividends: payments

of corp. profits paid out per share.

What’s the benefit of owning a share?

Dividends Some corp. pay

quarterly dividends. Dividends: payments

of corp. profits paid out per share.

Increased Value A stocks price reflects the long-

term earnings potential of a company. Investors are attracted to

stocks of companies they expect will earn profits in the future; because many people wish to buy stocks of such companies, prices of these stocks tend to rise.

Investors are reluctant to purchase stocks of companies that face bleak earnings prospects; because fewer people wish to buy and more wish to sell these stocks, prices fall.

How is Price Determined?

A stock's price is a report of the price at which a trade was made. For each stock, there is a bid (the amount a buyer is ready to pay) and an asking price (the amount a seller is willing to take). Whenever an investor accepts either price, a trade occurs. The price at which the trade occurs becomes the stock's new price.

Check Up!

List the 4 main types of Investments people make.

What is a corporation?

What is a stock/share?

What are the benefits and dangers of owning shares in a company?

Ways People often Invest

Savings – Using personal wealth to invest

Retirement funds – 401k, Roth IRAs, Pension Funds

Buying on Margin– Using borrowed money to invest.

Margin Buying

During the late 1920s stock prices soared because of margin buying. As long as prices

continue to rise the margin buyer can then sell their shares, pay back the broker (the person who gave them the loan) and keep the difference.

Check Up!

List the 4 main types of Investments people make.

What is a corporation?What is a stock/share?What are the benefits

and dangers of owning shares in a company?

What is the danger of “buying on margins?”

http://economics.about.com/od/stocksandmarkets/a/stock_prices.htm

http://www.ehow.com/about_4676915_how-price-stock-determined.html

http://en.wikipedia.org/wiki/Gross_domestic_product

http://etext.virginia.edu/journals/EH/EH37/Murphy.html