Expansion of credit Flashcards
What 2 things caused people to want more than they could afford in the 1920’s?
- new products being developed
2. increase in advertising
What did new products and increased use of advertising cause in the 1920’s?
People to want more than they could afford and eventually start using credit
When people wanted more than they could afford in the 1920’s, what did they do?
Start using credit to buy things
What is the downside of using credit?
You have to pay more for the product because you have to pay interest.
Why are banks willing to give people credit?
They will get interest, so they will get back more money than they loaned out.
What is interest?
Extra money that someone pays for the privilege of borrowing money.
What is credit?
Buying something immediately with money borrowed from someone else.
What happens by the end of the 1920’s regarding peoples use of credit?
Their payments on what they have already borrowed are so high, people can’t afford to borrow any more.
When people reach the point where they can’t afford to borrow money in the late 1920’s, what happens?
Lots of people have to cut back on spending at one time, putting us into the vicious circle.
