What is Macroeconomic Factor?
Macroeconomic Factor means those factors, events or situations which affect the national economy on a broad scale such as population, income; unemployment, etc. for instance it includes economic outputs, investments, savings and rate of inflation as well, these parameters are monitored by the highly professional teams governed by government or by other economists.
Macroeconomic factors which includes but not limited to certain factors which are geopolitical factors, per capita incomePer Capita IncomeThe per capita income formula depicts the average income of a region computed by dividing the total income of that area by the total population of the region. It is used to figure out the average income of a city, provision, state, country, etc., demand and supply analysis, the balance between capital and current account which is known as balance of paymentsBalance Of PaymentsThe formula for Balance of Payment is a summation of the current account, the capital account, and the financial account balances. The term balance of payments refers to the recording of all payments and obligations pertaining to imports from foreign countries vis-à-vis all payments and obligations pertaining to exports to foreign countries. It is the accounting of all the financial inflows and outflows of a nation., production and utilization analysis, etc. these all factors must be considered to examine the economic certainty of any economy and also the percentage contribution of each and every parameter which are considered while calculating macroeconomic factors.
Rules of Macroeconomic Factors
There are several rules which must be considered which are as follows:
- One must have to think like an economist and should apply the various economic models to consider the effect of macroeconomic factors followed by the use of various mathematics concepts.
- The analysis of prices which once taken as fixed and the other taken as the variable may also be compared.
- An economist must analyze in-depth about each and every factor which may affect the economy.
- The basis must also be considered while calculating the macroeconomic factors impact as each parameter has its own pros and cons.
- Various theories, problems, and policies must also be taken into consideration.
- The most important factor which must be analyzed is the demand and supply of the economy.
Macroeconomic Factors Affect Economy
The factors that affect the economy at a national level are as follows:
- Macroeconomic output is basically country gross domestic product (GDP) which includes all aspects such as country all produces and sells to generate income. In case a country’s output does not grow consistently, then the situation of the recession may arise.
- The rate of inflation along with the rate of interest also plays an important role considered while analyzing their impact on the economy and its development it is a well-implied law that where there is an increase in the rate of interest the earning power of all the individuals, firms and business will also decrease and the same would affect the countries economy and growth as well.
- Both inflation, as well as deflationDeflationDeflation is a decrease in the prices of goods and services caused by negative inflation (below 0%). It usually results in increased consumer purchasing power, owing to a simple supply and demand rule in which excess supply leads to lower prices., may occur where there is not a stable market. In the economies which grow or develop too fast than in such economy prices may inflate and make more difficult for consumers to buy such goods. Similarly, it can be said that in the situation of rapid downfall in the prices then in that situation the costs cannot be bearable by the business and results in heavy losses.
- The costs incurred by various business entities in the production of goods which thereafter made available for sale in the market will also affect the purchasing power of each and every person of an economy as in a situation where the incomes of the citizens remains the same and the costs of purchasing a product increases this directly means that the demand of the product will automatically decrease or falls.
- The policies with regards to the general population or could be called as public may also be called as macroeconomic factors. It includes environmental policies that are incurred by businesses and the costs and business tax may also be increased because of the same.
Examples of Macroeconomic Factor
- Market failure could also affect the economy adversely.
- Competition is necessary for development if there is no competitive market then the seller will start charging unreasonable amounts as well.
- Business cyclesBusiness CyclesThe business cycle represents the expansion and contraction of the economy that occurs due to ups and downs in the gross domestic product (GDP) of a country. It is experienced over the long term and goes parallel with the natural growth rate. are also important as the time required or given for payments is also a macroeconomic factor.
- Growth can be seen by observing the investments made or withdrawn.
- Price stability examines the purchasing power of an economy.
- The monetary policy laid upon in an economy will raise the standard of living if drafted properly.
- The employment rate will rise if we create a working environment in the country and can also contribute to the economy.
- Goods, trade, productivity, and efficiency are also some factors of macroeconomicMacroeconomicMacroeconomics aims at studying aspects and phenomena important to the national economy and world economy at large like GDP, inflation, fiscal policies, monetary policies, unemployment rates..
- Geopolitical factors must also be considered.
- Change in interest rates, etc is also relevant points to be considered.
The underdeveloped economy considers this aspect of measurement of economic growth as the best result measure as in microeconomicMicroeconomicMicroeconomics is a study in economics that involves everyday life, including what we see and experience. It studies individual behavioural patterns, households and corporates and their policies. It deals with supply and demand behaviours in different markets, consumer behaviour, spending patterns, wage-price behaviour, corporate policies. factor the data analysis level is very high as each and every aspect affecting the economy will be analyzed in depth which might not be relevant in a situation where every single step is contributing to the development of an economy. By identifying the possible effects of inflation, productivity, investments, production, and growth the economic decision must be taken to the reforms of an economy. Where the development rates and inflation rates are only considered those economies will not develop properly and the rate of unemployment will rise sharply.
There are two types of factors which are macro and microeconomic factors. These factors are considered while calculating the annual or quarter results of growth or development of an economy over a particular period of time which are made public for clearing the image of the economy in the mind of its citizens and sometimes also for the analysis and suggestion purpose from various economists. The route map which is prepared by various senior members committee for the proper and effective development of an economy considering various factors and requisite data available with them and from the past pattern analysis also are effectively prepared by the finance department of an economy, the correct and required decision taken in an economy will lead to the rapid development of an economy. This overall analysis will lead to the economic growth and development of a country.
This has been a guide to Macroeconomic Factor. Here we discuss the top 5 macroeconomic factors that affect the economy along with examples and importance. You may learn more about our articles below on accounting –