What are the Economic Factors?
Economic Factors are the factors that affect the economy and include interest rates, tax rates, law, policies, wages, and governmental activities. These factors are not in direct relation with the business but it influences the investment value in the future.
Examples of Economic Factors
There are multiple examples of economic factors some of them are as follows:-
- Tax Rate
- Exchange Rate
- Demand/ Supply
- Law and policies
- Governmental Activity
Economic factors that affect business as it is some of the other ways connected to business and influence drive of business like labor and its cost is always a controversial economic factor that affects the economy. Many countries have started outsourcing of labor from other countries.
Interest Rate is a major factor affects the liquidity of cash in the economy. A higher return on investment will attract investors. Management is playing a vital role in the growth of the company though it is not an economic factor it is a factor which affects by economic factors and drives the business to generate maximum revenue.
Top 10 Economic Factors Affecting Business
The following are the top 10 economic factors that affect the business.
#1- Interest Rate
Interest Rate is a major factor affects the liquidity of cash in the economy. With an increase in investment cash flow in country decrease and result in a decrease in liquidity of country whereas with a decrease in investment cash flow in country increase and result in an increase in the liquidity of country.
A higher return on investment will attract investors. But if the interest rate on loan increase cash flow in country decrease and result in a decrease in liquidity of country whereas with the decrease in interest rate over loan cash flow in country increase and result in the increase in the liquidity of country. So, the interest rate affects the economy.
#2 – Exchange Rate
The exchange rate comes into the picture in case of export and import. It affects international payment and price of goods and that affects the economy.
#3 -Tax Rate
The tax rate is a crucial part of the economy. The tax rate affects the price of goods and its sales which affects the economy.
#4 – Inflation
With the increase in demand price of goods or service increase which results in inflation and with inflation money supply in the market increases.
#5 – Labor
Labour and it is cost or wage is always an important economic factor that affects the economy. Many countries have started outsourcing of labor from other countries. The company starts its plant or production where labor is cheap.
#6 – Demand / Supply
Demand or supply of goods or services affects the economy as with the increase in demand price of goods or service increase which results in inflation and with inflation money supply in economy increases and with increases in the supply of goods or services price of the same decreases. Demand and supply are depended on each other.
#7 – Wages
Wages paid to labor or employee is a direct cost to the company which is added to the cost of goods or services through which it affects the economy and another way through which wages affect the economy is with an increase in wages consuming the power of one increases and increase consumer spending.
#8 – Law and Policies
With change or modification in the law economy of country changes, for example, its government makes a law that liquor should be ban in the country it will affect companies dealing with it, their employees, and shopkeepers which at a broad level affect the economy. Similarly, any policy made by the government will affect the economy.
#9 – Government Activity
Government activity also affects the economy. If the government is promoting any industry like insurance or medical or technology it will promote that sector that boosts its economy which will overall support the economy.
#10 – Recession
Recession affects the purchasing power of consumer which force companies to drop the price of their goods or services.
So, we can see how the above economic factors affect the economy.
There are many other economic factors examples that affect economies like unemployment, market, land, capital, science, and technology. For the proper functioning of the country, the economy needs to be stable and at a macro level, one can see the effect of that with stable business with competitive earnings.
Economic Factors Affecting Development
Economic development is developed to raise the average standard of living in the country. Each of the below-given economic factor influence the growth of the country. The following are economic factors affecting development.
#1 – Education and Training
Education is the most important tool in the development of the country. Education helps one to grow and develop which will result in the development of the economy. And skill training helps one to develop self which results in high wages and development of the economy.
#2 – Natural Resources
Natural resources available like a tree, water, soil, oil, coal, metal, etc. affect the growth of the country as if resources are available in-country one will not to pay for its export and existing resources will help in job creation and increase in wealth of country which will increase overall economy.
#3 – Power and Energy Resources
Power and energy resources are the main resources required for the functioning of industry, company, and country. Resources can be man-made like biogas and natural resources like petrol, coal, gas, etc. These powers are required for the development of the country and hence will affect the economy and develop it.
#4 – Transportation
Transportation is having a crucial role in economic development as for the circulation of one good or service good means of transportation is required. If a country is having good means of transportation it will able to increase the reach of goods or services to consumers and this will result in the economic development of the country.
#5 – Communication
With the development of science and technology consumers depended too much on technology. Communication helps in the expansion of the company and helps in the growth of the company. These days companies are using modes of communications like mobile, internet, etc. to promote their goods and services which lead to an increase in sales and as a resulting economy develop.
There are many other economic factors examples that help in economic development like technology, labor force, capital, etc. For the development of country economic development is required as unless and until the country has a strong economy it will not be able to become a developed country.
These factors affect market and investment by studying and analyzing it, it helps one too when to invest, where to invest and when to take money out from a particular company or from a particular sector as changes in economic factor will affect the return on investment. There are various examples of economic factors that affect business and economic development.
The investor needs to be prepared for a change in economic factors and its consequences by knowing the impact of economic factors investors can make the right decision in terms of investment. These factors also help management in decision making and to be prepared for any positive or negative changes in the economy.
Economic Factors Video
This has been a guide to what are Economic Factors. Here we discuss the top 10 economic factors that affect Business and Economic Development along with practical examples. You may learn more about our articles below on accounting –