What are the Economic Factors?

Examples of Economic Factors

There are multiple examples of economic factors. Some of them are as follows: –

  • Tax rateExchange rateInflationLaborDemand/ SupplyWagesLaw and policiesGovernmental activityRecession

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Economic factors that affect business as it is connected to business and influence the drive of business-like labor and cost are always controversial economic factors that affect the economy. Many countries have started outsourcing work from other countries.

Interest rate is a major factor that affects the liquidityLiquidityLiquidity is the ease of converting assets or securities into cash.read more of cash in the economy. A higher return on investment will attract investors. Management plays a vital role in the growth of the company. Though it is not an economic factor, it is affected 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 that affects the liquidity of cash in the economy. With an increase in investment, cash flowCash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more in the country decreases and results in a reduction in the country’s liquidity. Conversely, a decrease in investment cash flow in the country increases and increases the country’s liquidity.

A higher return on investment will attract investors. But, if the interest rate on loans increases, cash flow in the country decreases, resulting in a decrease in the nation’s liquidity. In contrast, with the decline in interest rate over a loan, cash flow in the country increases and increases the country’s liquidity. So, the interest rate affects the economy.

#2 – Exchange Rate

The exchange rate comes into the picture in the case of export and import. Due to this, it affects international payment and the price of goods, affecting the economy.

#3 -Tax Rate

The tax rate is a crucial part of the economy. The tax rate affects the price of goods and their sales, affecting the economy.

#4 – Inflation

The increase in the demand price of goods or services increases inflation and money supply.

#5 – Labor

Labour and cost or wage are always the important economic factors affecting the economy. As a result, many countries have started outsourcingOutsourcingOutsourcing refers to contracting out specific business processes to a third-party or specialized service provider, i.e., an individual or company.read more labor from other countries. The company begins 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. With inflation, the money reserve in the economy increases with the rise in the supply of goods or services. The price of the same decreases. Demand and supply depend on each other.

#7 – Wages

Wages paid to labor or employee are a direct cost to the companyDirect Cost To The CompanyDirect cost refers to the cost of operating core business activity—production costs, raw material cost, and wages paid to factory staff. Such costs can be determined by identifying the expenditure on cost objects.read more added to the cost of goods or services through which it affects the economy. Another way wages affect the economy is by increasing wages, consuming power, and improving consumer spending.

#8 – Law and Policies

With change or modification in the law, the economy of the country changes. For example, if the government makes a law that should ban liquor in the country, it will affect companies dealing with it, their employees, and shopkeepers, which affects the economy at a broad level. Similarly, any policy made by the government will affect the economy.

#9 – Government Activity

Government activity also affects the economy. So, for example, if the government promotes any industry like insurance or medical or technology, it will encourage that sector that boosts its economy, overall supporting it.

#10 – Recession

A recession affects consumers’ purchasing power, forcing companies to drop their goods or services.

So, we can see how the above economic factors affect the economy.

Many other economic factors like unemployment, market, land, capital, science, and technology affect the economy. However, for the proper functioning of the country, the economy needs to be stable. At a macro level, one can see that with regular business with competitive earningsEarningsEarnings are usually defined as the net income of the company obtained after reducing the cost of sales, operating expenses, interest, and taxes from all the sales revenue for a specific time period. In the case of an individual, it comprises wages or salaries or other payments.read more.

Economic Factors Affecting Development

Economic development is developed to raise the average standard of living in the country. Each of the below-given economic factors influences 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 grow and develop, resulting in the development of the economy. And skill training helps one develop oneself, which results in high wages and the development of the economy.

#2 – Natural Resources

Natural resources available like a tree, water, soil, oil, coal, metal, etc., affect the country’s growth as if resources are available in-country. Therefore, one will not pay for its export, and existing resources will help in job creation and increase the country’s wealthWealthWealth refers to the overall value of assets, including tangible, intangible, and financial, accumulated by an individual, business, organization, or nation.read more, improving the overall economy.

#3 – Power and Energy Resources

Power and energy resources are required for industry, companies, and countries. In addition, one can manufacture biogas and natural resources like petrol, coal, gas, etc. These powers are required for the country’s development and will affect the economy and develop it.

#4 – Transportation

Transportation has a crucial role in economic development as the circulation of one good or service good means of transport is required. If a country has good means of transportation, it will increase the reach of goods or services to consumers, which will result in the country’s economic development.

#5 – Communication

With the development of science and technology, consumers depended too much on technology. Therefore, communication helps in the company’s expansion and growth. These days, companies are using modes of communication like mobile, internet, etc., to promote their goods and services, which leads to an increase in sales and a resulting economic development. Many other economic factors examples help in economic development like technology, labor force, capital, etc. Economic growth Economic Growth Economic growth refers to an increase in the aggregated production and market value of economic commodities and services in an economy over a specific period.read moreis required for the country’s development unless, and until it has a strong economy, it will not become a developed country.

Conclusion

These factors affect the market and investment by studying and analyzing. It also helps when to invest, where to invest, and when to take money out from a particular company or sector, as changes in economic factors will affect the return on investment. There are various examples of economic factors that affect business and economic development.

Economic Factors Video

This article is a guide to Economic Factors. Here, we discuss the top 10 economic factors affecting business and its development, along with examples. You may learn more about our articles below on accounting: –

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