Most Common Economic Factors That May Affects Us

Both business owner and average consumer should be aware of various economic factors that may effect them. Any changes in these factors could improve or ruin their overall finances. Among the most significant factors are interest rates and they are charged on different things, including mortgage and credit cards. Some interests rates are fixed, variable and adjustable, depending on the platforms. They are used by the central bank to control the supply of money in the market. Any big change in interest rates could help or disrupt our financial plans. As example, borrowers can be aided or hurt by interest rates. Lower interest rates may allow them to pay off mortgage sooner, but higher rates may keep from buying a home. For existing homeowners, higher interest rates could increase the chance of foreclosure. Savers could also be affected by lower or higher interest rates. Lower interest rates will encourage people to invest more, while higher interest rate will discourage investment. Another factor that we should consider is the rate of inflation. Higher inflation could be caused by increases of prices. Consumers are badly affected by high interest rates, especially those with fixed income. It means that with their fixed amount of income, they will be forced to obtain less goods and services.

For people with variable income, higher rates of inflation may encourage them to increase productivity to allow them gain more income and compensate the effect of inflation. This will increase the supply of goods and services in the market; providing a counterbalance to the effect of high inflation as a whole. During a healthy economic condition, productivity is supposed to increase, which is counterbalanced with high demand. This encourages the economic growth and the overall wealth of the people. Unemployment rate may also the condition of our economy and it’s considered as an important indicator that may affect even average consumers. Higher rate of unemployment will make it harder for consumers to find job and this will reduce the overall demands. In this case, people could be forced to take low-paying jobs just to cover their basic needs. During high rate of unemployment, the rate of crime also increases and this will affect average consumers as well. This makes the financial crisis more difficult to deal with. Another major factor is foreign exchange rates. This affects how much we can get by converting values of money from other countries. Exchange rates always fluctuate and when they go up or down sharply, both business owners and average consumers are affected.

High rate of foreign exchange make imported goods more expensive and this will reduce sales. Business owners may be reluctant to increase the price too much to avoid discouraging sales and this will affect their bottom line. The government may intervene by injecting fresh fund to the market by buying their own currency using their foreign currency reserves. When the foreign exchange rate is high, consumers tend to choose locally-produced goods with high local content, which usually have lower prices and less dependent to foreign currencies.

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