12 January 2021

How Stock Market Affects Economy

By DICC Institute

The topic taken today is quite interesting for the people who are engaged in the stock market from a while now. Many of us always have some doubts regarding this ever-growing sector as to whether there is an effect caused to an individual’s economy when there are changes in the stock market. The answer is quite surprising but I am sure that once we get to know this market most of the doubts will be cleared. For your information any small or big change that takes place in the stock market affects the economic sector that causes a direct effect on individual income as well.

There were times where collapse has taken place in the past on the prices of the share in the share market at this extensive procedure there was widespread distribute in the economy was caused. There are times when the great stock market crash took place a few years back such as in the year 1929. That was surely a time of depression in the market of stock. That fact that the movements in the stock market cause impact on our economy as well is not something ordinary people like us have ever imagined. The stock is never assumed as the real money as it keeps on changing for many reasons such as an over-valuation or even large drop-down in the share. The main point to consider here is that if the stock keeps on falling does not indicate that our economy keeps on coming down as well this is not at all true in the first place.

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Let’s see the economic effects of the stock market one by one and try to understand each of them properly:

#1. Wealth effect:

The first one in this list is the wealth effect that is caused to the people at the very first beginning. The impact that is here is that the people who have share fall in their wealth which is quite unexpected. If the fall is a big one than a lot of their economy is affected. Once the money is been lost in all the share, they would not prefer to send it more not even for their basic needs which is important for sure. The consumer spending is a kind of disturbed here if you observe it. Many times the people spend a lot of money on buying these stock market share that their usual spending pattern is disturbed a lot. The short term loses as well as the long term loses play a different role here.

#2. The major effect on the pension:

There are lots of people out there who have a private pension or investment trust and with the effect taking place in the stock market these people also face great loses. The cause here can’t be seen directly but if carefully studied the rules and regulation mentioned by various banks then the criteria can be easily understood. This is one of the serious things that should be taken care as it’s affecting someone’s pension money. Also, if the pension money is getting effect this directly indicates that their future payouts would be lower than the actual thing been promised at the time of jobs. The household of such people will be getting affected by the lower payouts.

#3. Confidence in an individual:

The third thing I would like to highlight here is how the share market affects someone’s confidence to put it at the stack of matter. There are lots of confidence required by anyone to put their hard earning money on the stack in so that they can earn some profit out of it but once there is some loss is caused the individual lose the confidence he/she has in himself/herself.

This may be small to imagine but just think for the family of the person which are going to be the real people taking this burden upon them.

#4. Investment:

The fourth thing I would like to mention in this list is an investment. The falling price of the stock from time to time can affect the ability of someone to raise any kind of finance in the stock market for a long period. There are some company which do these raising funds often will surely reduce the low cost borrow fund scheme that is in great use in the market. But if the falling price keeps on increase like this them the procedure seems to be difficult.

#5. Bond market concept:

The fifth thing making its entry in this list is called the bond market. I hope there are many people out there who has knowledge related to this bond market. If the share keeps on falling like this then I am sure people will start losing their interest in the stock market for all. There are even government bonds maintained where people can invest money. These bonds set up by the government has great returns which are quite beneficial and if you think properly then these are quite safe too.

 Conclusion:

The above mentioned are a few ways the effect on share market can damage the individual’s economy. I hope the information mentioned above can be useful to people reading.

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