Economy of a country is defined as its capacity or rate of production, trade, distribution and consumption. If you want to have an in-depth look about the economy of a country and you have above mentioned figures of that country at your disposal, you can have a very clear picture of its economic situation. It will be safe to say that economy is a direct result of different processes involving values, culture, technological evolution, education, history, legal system and political structure of a country. The above mentioned factors dictate the value of currency to be exact. If a country has more imports, there is no doubt that they will have a far less economy as compared to a country which has major exports.The economy of a particular country can also be observed as sector based economy, for example, some countries have their economy based on tourism and people traveling to the country and spending while some have their economy based on technology or agriculture where they export these technological gadget or agriculture items to the international countries.
Factors Affecting an Economy:
Few of the major factors that directly affect economy of a state are mentioned here below.
Rate of Interest
The growth of an economy needs good backing from banking sector of a state. The interest rate of a state is set by the finance ministry of the state and this rate directly impacts the growth rate of its economy. If for an instance the interest rate set are on the higher side, this will prevent industrial unit to borrow money from banks. Industrial units are usually working on very low profit rates because of competition worldwide. A small percentage increase directly affects their rate of earning and so in those circumstances, they opt for working with the capital already available to them rather than going after fundraising ideas given by their accounts department. These interest rates also impact the average citizen as they will avoid taking a home on mortgage or get cars through leasing. When these factors are looked in broader sense they result in less buying and spending within the country which is literally an economy killer.
Currency Rate Stability
Since an economy is based on import and export of a country as well; if the currency of the state is not strong enough to be stable they result in great instability of the market. Usually all around the world the main currency used for trading is either euro or US dollar. If the country’s currency rates are changing too much they will result in great fluctuation of prices within the local market. Exporter might end up losing money on their consignments exported within a short period of time and importers will have to deal with losses in profit in short term because of these fluctuation.
The above two factors are the most killing factors affecting the economy’s growth. Many multinational companies who intend to expand their business to other countries give great importance to these two factors before finally deciding to enter that particular market.
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