The economy is made up of several components, such as wealth, income, interest, employment and productivity. Any of these economic environment components can change and affect the others, whether positively or negatively. It’s not quite as simple as spending money and buying things as a consumer. You must also take jobs into account as well as how much things cost.
Inflation and Deflation
Both inflation and deflation are factors that affect the economic environment of a country. In the U.S.A., the currency is measured by the dollar. Inflation and deflation can radically change the value of that dollar, which can either positively or negative change the monetary balance of the economic environment. Inflation or deflation directly impacts consumer spending, employment rates, tax policies, government programs and business investments.
Exchange rates are a big factor that affect the economic environment. They directly impact the price of imports as well as the profit made by exporting goods. Exchange rates also have an impact on investing and employment levels. The tourism industry, which holds a lot of weight in modern economy, is also affected by exchange rates.
Interest rates are important factors affecting the economic environment. In the age of credit, interest rates can determine whether or not the average consumer can pull himself out of debt or not. This also applies in the larger sense with not just consumers on an individual level, but with mom-and-pop businesses and large-scale businesses. To make money, you must spend money, but interest rates impact the ability or inability to pay back money that is owed. If the interest rate is particularly high for debt, consumers may have trouble paying back the interest, let alone the original debt that is owed. This results in putting the consumer further in debt than before.
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