What do you know about Macroeconomic Factors?

Abiodun Akinlawon Written by Abiodun Akinlawon · 2 min read >

Macroeconomic factors are events that have an influential fiscal, natural, or geopolitical effect on a national or continental economy. A macroeconomic factor can also be described as a pattern or condition that emanates from, or relates to, a larger aspect of an economy. We have a lot of macroeconomic factors that have significant effects on industries in Nigeria and Africa as a continent and we will be talking about some of them extensively. Common examples of macroeconomic factors include GDP, Inflation rate, Exchange rate, Money supply, and many others.

The impacts of macroeconomic factors can have a neutral, positive, or negative effect on the economy of where they exist. These effects will be explained briefly below.

Negative Macroeconomic factors

Macroeconomic factors are said to be negative when they include events that may jeopardize national or international economies. For example, a country experiencing high political instability and events that may lead to violence and war are likely to heighten economic turbulence. Some other forms of natural disasters, such as earthquakes, tornadoes can cause a shift in the distribution of resources that may affect the economy.

Neutral Macroeconomic factors

There are certain economic factors that have neither a positive nor negative effect on the economy. Such are said to be neutral macroeconomic factors. Rather, the precise implications are determined by the intent of the action.

Positive Macroeconomic factors

Positive macroeconomic factors include events that further foster prosperity and economic growth within the country or region where they exist. A good illustration is given the case that there’s a decrease in fuel price in the country. This will increase the spending power of consumers and they get to purchase more retail goods and services, which in turn leads to increased profits and can eventually drive-up stock prices.

For our Analysis, we considered a number of macroeconomic factors, and we will be talking about the following

  • Gross Domestic Product (GDP)
  • Interest rate
  • Money supply
  • Inflation rate
  • Exchange rate

Gross Domestic Product (GDP)

The gross domestic product is a quantitative or monetary measure of the market value of all finished goods and services produced over a given time. It is the appropriate measure of the value added created through the production of goods and services in a country during a certain period.

Money supply

The Money supply as a macroeconomic factor refers to the total volume of money held by the public at a particular point in time in an economy. Money supply includes the total money both in the form of cash and deposits that can be used as cash easily. The money supply is determined by the required ratio and the excess reserve ratio of commercial banks.

Inflation rate

Inflation is an important measure of the state of the economy. This is an important factor to note because inflation erodes the value of money and financial assets. Inflation affects all aspects of the economy, from consumer spending, business investment and employment rates. Most investors put into consideration the possible inflation rate of a country because inflation can reduce the value of investment returns.

Exchange rate

The exchange rate is the value of a country’s currency as compared to that of another country or economic zone. The exchange rate is an important macroeconomic variable used as a parameter for determining international competitiveness and indicates the global position of the economy if a country. A fixed or pegged exchange rate is usually determined by the government through its central bank. The rate is usually set against another major world currency such as the US dollar, euro or yen.

Interest rate

The interest rate is defined as the proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. It is the rate a bank charges to borrow its money, or the rate a bank pays its savers for keeping money in an account. The interest rates are also usually determined, to a large extent, by central banks who actively commit to maintaining a target interest rate. The interest rate affects a country’s macroeconomics because higher interest rates mean higher borrowing costs, which will in turn mean that people will eventually start spending less. This will also lead to a drop in the demand for goods and services, which will in turn cause inflation to fall.

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