ch.22 sct. 1 C.T.#4

Based on the events of the late 1920s to early 1930s, I think that public confidence is very, very important and influential to the health of the economy. Overconfidence led people to speculate and buy on margin and led to more consumer borrowing.
During the 1920s many households bought lots of items on credit, so they went into debt when they kept buying stuff they couldn't afford. After business/the economy in general sort of peaked, it started going down a little, and then the stock market just ruined it. Americans' belief in the prosperity of the economy ended up being detrimental to both their own financial situations and the economy's as a whole.
Since in the early 1920s, business was doing pretty well, the stock market was doing well also. Lots of people began to invest in the stock market, thinking that they had enough money to afford the shares, businesses were doing very well and climbing, and that they might strike it rich from quick profits. They engaged in speculation and ignored the risks of the companies NOT doing well. The idea of buying things on credit, which had appealed to many many people in the 1920s was extended into the stock market so that people could buy on margin, and pay most of the cost of the share later. Many people took advantage of this and bought shares even though they didn't really HAVE the money to pay for it. So, if the companies did not do well and the values of the stocks declined, people who had bought them on margin would have no way to pay off their debts. This is precisely what happened. When the stock market crashed, all the people who had invested huge amounts in the stock market because of their overconfidence in business lost all their money, and the people who had bought them on margin had no money to pay off their debts. If the people hadn't been so confident in the superficial prosperity of the economy, less of them would have invested (and thus lost) so much in the stock market with money they didn't have. (p.673). Public confidence affected the economy greatly in this aspect.
Public confidence is very important and influential to an economy in that it leads people to jump to conclusions and sometimes make descisions that will turn out poorly once the true state of the economy's health is revealed.