Macroeconomic Factor

Updated on January 29, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What is Macroeconomic Factor?

Macroeconomic Factors are those factors, events, or situations that affect the national economy on a broad scale, such as population, income, unemployment, etc. For instance, it includes economic outputs, investments, savings, and inflation rates. These parameters are monitored by the highly professional teams governed by the government or other economists.

Key Takeaways

  • Macroeconomic factors refer to the characteristics, events, or conditions that may widely influence the national economy, like population, income, unemployment, etc. These criteria are analyzed by highly professional teams governed by the government or economists.
  • Macroeconomic factors are not limited to geopolitical factors, per capita income, demand & supply analysis, the balance between capital and current account, known as balance of payments, production, utilization analysis, etc.
  • The underdeveloped economy considers economic growth the best result measure as a microeconomic factor. Therefore, the data analysis level is very high as every feature damaging the economy is deeply determined, which is optional for a situation where every single step contributes to the economy’s development. 

Explanation

Macroeconomic factors includes but are 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.read more, 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.read more, 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.

Macroeconomic-Factor

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Source: Macroeconomic Factor (wallstreetmojo.com)

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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.
  • One must think like an economist and apply the various economic models to consider the effect of macroeconomic factors followed by various mathematical concepts.
  •   The basis must also be considered while calculating the macroeconomic factor’s impact, as each parameter has pros and cons.
  • Various theories, problems, and policies must also be taken into consideration.
  • 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.

Economic Factors Explained in Video

 

Macroeconomic Factors Affect Economy

The factors that affect the economy at a national level are as follows:

  • Macroeconomic output is the country ‘s gross domestic product (GDP) which includes all aspects, such as the country all produces and sells to generate income. If a country’s output does not grow consistently, a recession may arise. The factors that affect the economy at a national level are as follows
  • 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 and Celebration as well as deflationDeflationDeflation is defined as an economic condition whereby the prices of goods and services go down constantly with the inflation rate turning negative. The situation generally emerges from the contraction of the money supply in the economy.read more, 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

  1. Market failureMarket FailureMarket failure in economics is defined as a situation when a faulty allocation of resources in a market. It is triggered when there is an acute mismatch between supply and demand. As a result, prices do not match reality or when individual interests are not aligned with collective interests.read more could also affect the economy adversely.
  2. Competition is necessary for development if there is no competitive market then the seller will start charging unreasonable amounts as well.
  3. Business cyclesBusiness CyclesThe business cycle refers to the alternating phases of economic growth and decline.read more are also important as the time required or given for payments is also a macroeconomic factor.
  4. Growth can be seen by observing the investments made or withdrawn.
  5. Price stability examines the purchasing power of an economy.
  6. The monetary policyMonetary PolicyMonetary policy refers to the steps taken by a country’s central bank to control the money supply for economic stability. For example, policymakers manipulate money circulation for increasing employment, GDP, price stability by using tools such as interest rates, reserves, bonds, etc.read more laid upon in an economy will raise the standard of living if drafted properly.
  7. The employment rate will rise if we create a working environment in the country and can also contribute to the economy.
  8. 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.read more.
  9. Geopolitical factors must also be considered.
  10. Change in interest rates, etc is also relevant points to be considered.

Importance

The underdeveloped economy considers this aspect of measurement of economic growth as the best result measure as in microeconomicMicroeconomicMicroeconomics is a ‘bottom-up’ approach where patterns from everyday life are pieced together to correlate demand and supply.read more 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.

Conclusion

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.

Frequently Asked Questions (FAQs)



What are the six critical macroeconomic factors?

The six critical macroeconomic factors are GDP(Gross Domestic Product), output, interest rates, production, income, and expenditure.

What macroeconomic factors affect the stock market?

Macroeconomic factors impact the whole economy or all sectors. It also involves individual stocks influenced by micro factors. In addition, the Indian stock markets are timely affected by factors or price shifts in anticipation of events or economic development, a sector, or specific stocks.

Does stock return influenced by macroeconomic factors?

The primary interest rates and GDP impacts stock returns. Still, the macroeconomic variables’ inflation and market expectation of future behavior affects the stock returns minimally.

Is climate change a macroeconomic factor?

As climate change strengthens, it is the controlling factor forming the macroeconomic variables. It may result in higher inflation and debt-to-GDP ratio, requiring stringent fiscal and monetary policies.

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