The economy is composed of all financial activity between companies and consumers within a country or region. Factors that influence the economy in the modern world include; government, international transactions, speculation and expectation, supply and demand.
Factors that influence market fluctuation
Government: the monetary and fiscal policies that governments throughout the world impose do have a major effect on the financial marketplace. Monetary policies include the decisions that revolve around increase or decrease interest rates by central governments (for example the Federal Reserve in the case of the United States) have a major influence on economic growth. On the other hand, fiscal policies are the attempts of the government to create employment by increasing its budget and spending on labor. The Federal Reserve controls interest rates and the number of dollars available to the open market. In this way, the government influences the flow of investment into and out of a country.
International transactions: the flow of currency between nations impacts in a major way acountry’s economy. Export of goods and services enable a continuous flow of money into a country, money which can stimulate financial markets within a nation.
Speculation and expectation: this is a significant part of economic systems. Politicians, investors, and consumer all hold an opinion on where the market is or should be heading. These opinions and views affect how they (investors, politician, and consumers) behave- how they invest and spend their money.
Supply and demand: the supply, availability, and demand for goods, services, currencies and other investments directly influence prices. If a product is in demand and the supplies diminish then the prices will increase. On the other hand, if supply outweighs demand, then prices will drop. Demand is a major determinant of prices.
But out of these four factors, which ones exert the most influence on the economy and market trends. It is a traditional opinion that government regulations have the most influence on market patterns and directly or inversely affects the economy. This may be true considering that if a
government in a country was to ban the use of plastic bags or plastic products, then the population would be forced to look for alternative ways to pack their produce. The key players in the plastic industry will evolve to cleaner and greener alternatives like paper bags, carton boxes, cloth bags, and baskets.
It is my opinion however that today the market has shifted to tunes of demand, the desires of the population. Today we have industries that exist due to the populations’ self-awareness, for example, the organic food industry, the green and renewable industry just to name a few. Health and fitness is a subject that is dear to many people, and this has led to a growing increase in demand for organic produce.
Farmers throughout the world have to that effect altered their chemical technology to cater to the needs of this population. Tesla, a significant player in the green and renewable energy industry, has in the recent years innovated cars for the growing population that wants action or change implemented against climate change and global warming.
Having achieved success by listening to this fraction of the people, they have achieved great success that major players in the motor industry now produce electric or hybrid cars. In this way, demand influences the market which in turn impacts the economy.