Factors Influencing A Drop In The Economy
The economy of a country can depend on several factors, and the collapse in any one of its segment can result in the downfall of the economy of a government. Economic collapse can occur due to national or regional economic breakdown because of the instability of the economy for a long time. During this time, the country suffers social unrest, bankruptcies, trade loss, currency violation, and social chaos due to unavailability of resources. The government should identify the major causes of economic breakdown and work towards improving the solutions for such causes at a constant rate. Here are some of the reasons which cause a drop in the economy.
Higher rates of unemployment in a country can become a major issue for the collapse in the economy. Unemployment occurs because the industries experience a huge loss due to less demand for the products and don’t require more workers. Due to fewer workers, the factories face incompetence in manufacturing their products, and the cycle continues. This might seem like a small issue but can affect the economy if the cycle continues for a long time, and it will be hard for the economy to recover back.
When the investors face a tremendous loss in their invested market, they lose confidence in putting more money into the stocks. This results to a dramatic decline in the stock prices and overall brings down the value of the industries. The stock market crashed occur due to a prolonged increase in the stock values which makes it difficult for the market to find more investors as they don’t want to risk their money on such stocks at minimum profits.
Unemployment
Higher rates of unemployment in a country can become a major issue for the collapse in the economy. Unemployment occurs because the industries experience a huge loss due to less demand for the products and don’t require more workers. Due to fewer workers, the factories face incompetence in manufacturing their products, and the cycle continues. This might seem like a small issue but can affect the economy if the cycle continues for a long time, and it will be hard for the economy to recover back.
High Oil Prices
The oil industry is the most demanded industry in the world as oil is essential for the production processes for most of the products available in the market. If the oil prices rise at faster rates than the economic rise, it will only lead to more decline in the economy. The oil prices and economy should go hand in hand. High oil prices can cause inflation and lead to higher rates of unemployment, leading to economic decline.Hyperinflation
Several factors result in hyperinflation. It occurs when the government allows the inflationary pressure to rise to print more money until they are unable to control it anymore. As the printing of currency goes out of control, the prices of products in the market will increase. As the prices for the commodities and service rise, and later, the government fails to maintain a balance between the capital and trades, hyperinflation occurs, which then forces the government to take debt from other countries. This is one of the major reasons which result in the downfall of the economy and is hard to gain back control over it.Stock Market Crash
When the investors face a tremendous loss in their invested market, they lose confidence in putting more money into the stocks. This results to a dramatic decline in the stock prices and overall brings down the value of the industries. The stock market crashed occur due to a prolonged increase in the stock values which makes it difficult for the market to find more investors as they don’t want to risk their money on such stocks at minimum profits.
Gross Domestic Product (GDP) And The Factors Affecting It
The economy and development of a nation is measured through the Gross Domestic Product. It is the measurement of the total value of financial productivity in a country irrespective of the sources of production. All the home industries and the cross border industries which are setup inside a country contributes to the GDP of the nation. The factors that are involved in the tracking of a nation’s GDP are consumption, investment, trade with other nations, and the overall international market. The GDP represents the total dollar value for all the goods and services produced over a specific period and gets compared to its previous quarters. A nation with good GDP attracts more companies and generates more profit in the stock market.
Let us take a look at the factors which affect the GDP of a nation.
Leisure Preference
We have advanced through the ages to build machines and systems for the industries that productivity has reached new heights and requires minimum efforts. The ease in the workload has given confidence to workers to explore out more ways to reduce the workload. This has given the workers the chance to find more time for themselves to get involved in leisure activites. However, the time spent on such activities rather on work does not reflect in a nation’s GDP. The GDP of the nation only measures the production, and the more time spent on doing other things will automatically bring a significant change in the GDP of a nation.Non- Market Activities
The unpaid and volunteered service does not count in the GDP of a nation. All the unofficial activities performed by the industries and government such as NGOs, nursing, free education does not contribute to GDP in any way even though it consumed the resources of the nation. Also, the workers like plumber, private drivers, house cleaners, etc. do not count in the tracking of GDP unless they are performing under a legal organization. These factors however do not damage the economic record for the country, but they are not even getting noticed under the GDP for a country which affects the tracking tremendously.Underground Economy
Many activities inside a nation take place unofficially. The legal and illegal activities are both involved in raising the underground economy. Organized crimes such as dealing of illegal products, illegal occupation of lands in remote areas, child care and NGOs contribute to the underground economy of a nation, and it does not get recorded in the GDP of the nation.
Poverty and Economic Inequality
The economic stability of a nation is dependent on the per capita income. As the per capita rises the cost of living also increases, making it difficult for lower class people to deal with their expenses. This results in the increase of people in below poverty line. The inequality in income has been increasing in most developing nations. But GDP measures only the production of goods and not its consumption. So the GDP can be inaccurate in depicting the growth of a nation as two nations can have the same production rates but can differ by a huge margin on the equal consumption of those resources.
Deconstructing Inflation And Deflation
Inflation and Deflation are both components related to the downfall of the nation’s economy. Inflation occurs due to the rise in the prices of services and goods, whereas deflation occurs due to the decline in the prices of services and goods. It is difficult to maintain a proper balance in both, and the extreme of any one of these can lead to economic issues. Deflation and inflation can be experienced in different sectors of the economy of the nation, and the government keeps refreshing the rates of the products in the market to balance the two sides.
Let us find out the factors which contribute to the inflation and deflation of an economy.
Deflation can occur when the resources are produced more than the demand, and as there are no consumers to the goods and services, the prices drop significantly. When the industries become famous for their ideas, other companies start buying the patent to create their own products. This results in an unlimited supply of products. Overstacking of the inventory forces the companies to drop their prices, which leads to deflation. When the prices are lowered, people get encouraged to apply for loans, but the providers tend to refuse such loans due to high demand, which adds up to more deflation. Prolonged deflation in any sectore of the industry can result in affecting the economy of a nation and increased unemployment. It is more dangerous than inflation.
Inflation
It is a quantitative measure of the increase in the prices of goods and services. When the products in the market have high demand rate, and productivity is not able to cope up with the demands, the scarcity of the products leads to a rise in the prices for the products. There can be various reasons involved in the rise of prices such as natural disasters, unavailability of resources, occupation of private homes to exhaust building demands, etc. During such scarcity of products, people are willing to pay more to avail their needs.