Bell Quiz Why did more Americans start living on Credit?

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Presentation transcript:

Bell Quiz Why did more Americans start living on Credit? Define buying on Margin. What would October 29, 1929 be known as? In 1933 how many banks closed? What happened to world trade? How did this happen?

Answers People wanted more things, Living beyond their means. Paying a small % of a stock’s price as a down payment and barrowing the rest. Black Tuesday 11,000 IT STOPPED. Countries raised Tariffs to encourage buying home made products.

The Crash! The collapse of the stock market did NOT cause the Great Depression!! Instead, the depression caused the stock market to bottom out.

Law of supply and demand: A) Prices on goods increase when demand is high and supply of goods is low. B) Prices on goods decrease when demand is low and supply of goods is abundant.

So what did cause the Great Depression? Well its Complicated Drop in industry. Overproduction of crops and inability to pay farm loans. The availability of easy credit. Consumers buying less goods due to high prices and low wages. Unequal distribution of income.

Industries in Trouble Many industries overproduced goods and had a large supply to get rid of=lost $. Mining and lumbering were no longer in demand. Railroads were losing customer and Businesses to new forms of transportation. The housing industry slowed down since less people were building houses. When housing slows, so do jobs in related industries, like cement, lumbering, furniture, landscaping, roofing, etc. Sound familiar?

Farmers in Trouble Demand fell after WWI, and crop prices declined by 40% or more. Response farmers boosted their product however Prices fell. This caused farmers unable to pay off their loans.

Buying and Living on Credit (debt) This was a new idea. Credit buy now, pay later. Means you will buy an item now (house, car, computer, School loans…..) and pay back over time with interest.

Consumer have less money If you have less money what are you most likely to do? People were buying less because they had less money. In response to the lack of money businesses laid off workers because they needed to save money.

Uneven Wealth Workers got poorer and poorer. 3 out of every 4 families were living below the poverty line. Since they had no money they could not buy any Products So who was going to boost the Markets.

Buying with Credit You will not be able to buy everything up front. So buying some things on credit is ok. House Car Others not so much..think about it.

HOUSE Price: 250,000 X 6% annual interest =$ 15000 per year in interest. Length of loan=30 years (360 months) $15000 X 30 years=$450000 in total interest. Total Price of House: $250000+$450000=$700000 How much is your monthly payment?

Your Turn Find House (use your technology) $400,000 6% annual Interest Length of loan=30 years (360 months) Find your total. what is your monthly payment?

School Loan Find your College that you want to go to. Add tuition, Books Room and Board, other Expenses. Average $10,000- $12,000 a Semester. (x by 8 Semesters) 5% annual Interest 35 year loan What's your Total? What's your Monthly payment?