For example increases in consumer credit are expected

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Unformatted text preview: xpectations, exports and imports, personal income, and the money supply. For example, increases in consumer credit are expected to push up the Dow, the thought being that when consumer credit rises, people will buy more goods and services, which is good for the companies that sell goods and services. When consumer credit falls, the reverse happens. 16 (428-459) EMC Chap 16 EXHIBIT 11/18/05 16-2 9:33 AM Page 433 Dow Dow Jones Industrial Average: 1928 – June 2005* Industrial Average: 1928 June 2005 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 When would have been a good time to have purchased shares in the companies making up the DJIA? When would have been a good time to sell? (There’s more than one answer to each question.) 4,000 3,000 2,000 1,000 19 28 19 33 19 38 19 43 19 48 19 53 19 58 19 63 19 68 19 73 19 78 19 83 19 88 19 93 19 98 20 03 20 08 20 13 0 Year *Annual data to 1946, monthly thereafter. QUESTION: I own a few stocks as a result of some gifts I received from my grandparents. None are included in the Dow Jones Industrial Average. Does it affect me when the Dow goes up or down, even if I do not own any of the stocks that make up the DJIA? ANSWER: It doesn’t affect you if we are looking at daily changes, but if we are talking about a long decline or a long rise in the DJIA, then it indirectly affects you. Many economists say that what happens in the stock market—or to the DJIA—is a sign of future economic events. In other words, if the DJIA goes down over time, it indicates that the economic future is somewhat depressed; if it goes up over time, it indicates that the economic future looks good. The economic future, good or bad, is something that does affect you. It affects prices you pay, how easy or hard it is to get a job, how large or small a raise in income you get, and so on. How the Stock Market Works Suppose a company wants to raise money so that it can invest in a new product or a new manufacturing technique. It can do one of three t...
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This document was uploaded on 01/16/2014.

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