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Economics in the 1920s

Economics in the 1920s. From Boom to Bust. Investors. The 1920s was a time of prosperity and cultural revolution in North America, 1 in 2 Canadian families owned a car by 1928 By 1929, over 60% of Canadians had electricity in the home.

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Economics in the 1920s

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  1. Economics in the 1920s From Boom to Bust

  2. Investors • The 1920s was a time of prosperity and cultural revolution in North America, • 1 in 2 Canadian families owned a car by 1928 • By 1929, over 60% of Canadians had electricity in the home. • The government did not regulate the stock market so investors could invest however they wanted • This was known as Laissez-faire capitalism

  3. The Stock Market • By the 1920s many businesses were too large to be owned by just one person or family • When the companies needed money, they sold shares to investors • Share prices were determined by supply and demand • If a stock was popular its price rose • If more people wanted to sell, the price fell

  4. Investors Part 2 • Careful investors would investigate the company’s prospects before investing in their stock • Stock values went up dramatically throughout the 1920s • Investors made huge profits on paper • The cost of a company’s stock had no relationship to their actual earnings

  5. Taking Risks • Compared to the general public, the actual number of investors was low • Most people saw the stock market as a “get rich quick” scheme • Investors bought on margin paying the broker only 10-15% of the price of the shares • When the stock rose, they would pay the difference with the profits • If the stock fell, the broker could make a margin call and the investor would have to pay back all the money they owed • No one worried about margin calls because the stock market was growing too fast

  6. Consumerism • Canadians became “buy now, pay later” consumers • Retailers encouraged people to “buy on time” so they could pay for their purchases over two to five years with a small down payment • This encouraged people to buy more and more products and retail businesses were very successful

  7. Those Who Didn’t Prosper • Life was harder for immigrants who did not speak English and had few job skills • Employers took advantage of them paying as little as possible • Women were paid less than men for doing the same job • Companies made huge profits but did not pass that on to their employees • Many workers could not afford to buy the products they were making leading to surplus goods piling up in warehouses and stores

  8. Warning Signs • Most people though the booming 1920s would last forever • Some economists saw the danger signals • The rich got richer while workers, immigrants, and farmers did not have enough money to buy their share of the goods

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