The larger economic picture, also known as macro economy, can seem, at first glance, a distant and unrelated concept to us, but the reality is that macro economy can have a significant impact on our day-to-day lives. In this article, we’ll explore the impact macro economy has on our daily lives, along with tangible examples aiming to bring the concept into actuality for everyone, regardless of their financial background.
Macro economy’s impact on different aspects of our lives
Employment
One of the most direct ways macro economy affects our daily lives is through employment. The state of the macro economy can influence the job market, thus affecting the availability of jobs and the wages offered. In simpler words, when the economy is strong and growing, companies tend to expand and hire more workers, resulting in more job opportunities and more potential for wage growth.
On the other hand, when the economy is weak or in recession, companies often reduce hiring or even lay off workers (you can see, most recently, the massive tech layoffs that took the job market by storm, leaving thousands without a secure future), making it harder to find a job or negotiate higher wages.
We can see another good example during the 2008 financial crisis when the macro economy was in a severe recession, causing many companies to cut back on hiring and lay off workers. This led to an increase in unemployment rates and made it harder for people to find work.
Inflation
Inflation, or the rate at which prices for goods and services increase over time, is another way the macro economy affects our daily lives. Inflation can erode the purchasing power of fiat money, meaning that the same amount of money can buy fewer goods and services over time. This can impact our ability to afford basic necessities like food, housing, and healthcare.
For instance, if inflation is high, the cost of goods and services can increase significantly over time. This can make it harder for people with fixed incomes, like retirees, to maintain their standard of living. Just look around right now as we pass through a harder financial time with many necessities’ prices increasing dangerously.
Interest Rates
Macro economy affects interest rates, as well. When interest rates – known also as the cost of borrowing money – are low, it can be easier and more affordable to borrow money for assets like a home, car, or even education. The same principle applies for the opposite: when interest rates are high, borrowing money can become more expensive and less accessible.
For example, right now interest rates are becoming more and more high, transforming the cost of borrowing money into a more complicated process, thus making it harder for people to purchase a home, a car or to afford higher education. If the interest rates continue to rise, it could turn into a seriously dangerous situation for millions of people around the world as many can lose their homes or other assets.
Consumer Confidence
Consumer confidence helps measure how optimistic people are about the economy and their personal financial situation. When people feel confident about the economy and their own financial situation, they are more likely to spend money on goods and services, which can boost economic growth. On the opposite end, when people are uncertain about the economy or their financial situation, it becomes increasingly difficult to save money or make big financial purchases, which can slow economic growth.
Example: During times of economic uncertainty, such as during the COVID-19 pandemic or the inflation surge we are currently experiencing, many people were hesitant to spend money on non-essential goods and services. This resulted in a slowdown in economic activity, as consumer spending accounts for a significant portion of economic growth.
Taxes
Macro economy plays a huge part in how taxes impact our daily lives, as they can affect our take-home pay and the cost of goods and services. When taxes are high, people may have less disposable income to spend on goods and services. On the other hand, when taxes are low, people may have more money to spend on things they enjoy.
For instance, if taxes on goods and services like gasoline or food increase, the cost of these items can also increase. This can make it harder for people to afford basic necessities or to travel by car, either for pleasure, or for work.
All in all, while the macro economy may seem distant and unrelated to our daily lives, it actually has a significant impact on our ability to find employment, afford basic necessities, borrow money, and save for the future. By understanding the ways in which the macro economy affects our daily lives, we can make informed decisions about our finances and prepare for potential economic shifts. Here are some additional tips on how to navigate the macro economy:
- Stay informed: Keep up-to-date on economic news and trends, such as changes in interest rates or inflation, to anticipate how they might affect your finances.
- Diversify your investments: Investing in a variety of assets can help protect your finances from economic volatility.
- Build an emergency fund: In times of economic uncertainty, having a financial cushion can help you weather unexpected expenses or loss of income.
- Plan for retirement ahead of time: Investing in a retirement fund can help you prepare for your future and avoid financial hardship in your later years.
Overall, understanding the ways in which the macro economy influences our daily lives can help us make informed financial decisions and prepare for potential economic shifts. By staying informed and taking proactive steps, we can navigate the ever-changing economic landscape and protect our financial wellbeing.
