5 Ways in Which the Stock Market Affects the Economy
Saturday, March 3, 2018, 6:00 AM | Leave Comment
Anything that has to do with the earning ability of any individual will have an effect on the economy.
It is an open secret that unemployment is a major factor in a weakened economy. If there is no money changing hands, then the economy is not as dandy as one would hope.
If the share price plummets, the backlash on the economy could be catastrophic. Could be, not will be. No investor wants to risk their money on a market that will not bring in returns. However, as the stock market cannot be taken to be the real economy, day to day movements of shares may not have that big an impact. Information is important.
Checking sites like bunzlplc share price regularly could give you more insight.
What really happens is that a slump in the share market might be an indication of a struggling economy. If business is down, then that means there is less money changing hands. A stock market crash is more likely to influence monetary policy.
Effects of the Stock Market on the economy
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Wealth
Shareholders will feel the effect because there will be a reduction in wealth. How bad the reduction depends on how big the slump is. Then of course, if they are losing money on their stock, they will not be as willing to invest or even spend money.
A reluctance to spend means a fall in overall expenditure, which while it is not a catastrophe, could mean a noticeable dip in the economy.
It is mostly the wealthy who invest in shares and they are usually ready to make losses. The majority of consumers will be affected indirectly when there is a decline in house prices.
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Pensions
If you have a private pension or a trust, you should pay attention to the stock market. It will affect you albeit indirectly.
Pension is a huge contributor to the share market investment. This means that if there is an uncontrolled downward spiral of the share price, your pension will be affected.
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Consumer Confidence
Fluctuations in the share price indicate that all is not well with the economy. The possibility of a recession causes share prices to plummet.
Reports in the dailies about falling share prices will make the consumer nervous as it is a sign that the economy is not doing well. That could spell all kinds of money related troubles for the consumer.
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Investment
If the share prices are going down, companies find their plans to expand may be curtailed. They are compelled to reel out more shares to meet their budgets. Falling share prices render such transactions that much more difficult.
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The Bond Market
Falling share prices will make other investment options seem more lucrative. Investors could opt to quickly cash in their shares and take their money elsewhere.
There may be a rush to purchase government bonds or go into gold as the returns are better when there is uncertainty.
The effects of the stock market may not be felt on by individual consumers directly, but in the long run, they will find themselves caught up in the crunch, which means that anyone should find sites like bunzl plc share price to learn a little bit about share prices.
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