Posted in Finance, Accounting and Economics Terms, Total Reads: 270
Definition: Macroeconomic Factor
It can be defined as a factor which affects or is relevant to the broad aspect of an economy than a certain population or individual. The key macroeconomic factors are gross domestic product, unemployment, inflation, interest rates, consumption and savings of individuals, government spending etc.
Macroeconomic factors are the indicators which are used by the government to set policy goals and create stability in the economy. In doing this the government tries to visualize future prices and levels of employment and other key macroeconomic factors. Individuals look at the macroeconomic factors to gauge how easy it will be to find work, how much it will cost them to purchase goods and services from market or what will it cost them to borrow money. Companies view macroeconomic trends to determine whether they should expand their capacity and whether it will be welcomed by the market. They also gauge whether consumers have enough disposable income to purchase products on shelves.
The macroeconomic factors can be influenced by either central bank’s monetary policy or government’s fiscal policy. Monetary policy can be understood by the open market operations of the central bank. It buys government bonds from the market when it has to increase liquidity in the economy so that interest rates decrease i.e. cost to borrow funds decreases. The government uses fiscal policy to affect consumer spending by increasing or decreasing level of taxes. The government increases taxes or lower government spending to lower output that is decrease in consumer spending through less disposable income as more of salaries and wages will go into taxes.