What is the connection between the stock market and economic growth?
Economic growth occurs when the production level increases in response to consumer demand. The stock market and economic growth are inseparably interconnected because the stock market is rising and decreasing in conjunction with the wealth of companies that control economic expansion. While stock markets serve as useful barometers for people trying to measure growth, some economists even claim that stock markets promote growth.
usually begins to grow when companies respond to increased demand for goods and supplies by hiring new workers. In order to cover the costs of hiring new employees, the company relies on borrowed funds or investments of capital from the company owners. Many companies lend money in the form of long -term debts called Bonds and these tools can be purchased and sold in stock markets around the world. In addition, ownership shares or stocks in companies on stock markets are also purchased and sold and companies receive money by selling Invest stock benefitsTors. Thing of tradable bonds and shares to increase capital means that there is a direct connection between the Nation's stock market and economic growth.
In the absence of stock markets, the company must rely on the owners of the company who use their own savings to finance the expansion of the company or for funds borrowed from financial institutions. Banks finance loans by lending money for low interest rates from consumers and then lend this money for a higher rate for business and consumer debtors. Traditionally, banks served as intermediaries in the transfer of funds from the savior to debtors, such as the expansion of corporations. Free market supporters claim that stock markets eliminate banks as an intermediary, which means that the funds can be more efficiently transferred from the savior to debtors. Many economists believe that the relationship between the stock market and the economicMutually addiction is a growth, because easy access to funds allows corporations to expand and that growth stimulates.
Free market critics also recognize the connection between stock market and economic growth, but claim that stock markets can actually negatively affect growth in the long run. These individuals believe that investors are less likely to invest in long -term illiquid products such as deposit certificates (CD) if they have constant access to high liquid growth tools such as stocks. Because banks use CD money and resources from similar types of products to financing mortgages and long -term loans, these banks must reduce such loans when a large number of investors pay their money for stocks and other securities. In the opinion of some economists, this can make sustainable long -term growth.