How does the stock exchange affect the economy ?
Equities or stocks affect the economy in many different ways. In fact, so much can be stated that I need to be selective in what to say. So, let me make three points.
First, many people have money in the markets. In other words, people invest in stocks. So, if the markets go down, then people can actually lose a lot of money. Conversely, if stocks go up, a person can make a lot of money.
Second, related to the first point, many pensions are in the markets as well. If the markets go down, then people's future retirement money can be lost as well. This has very serious ramifications for the economy. For example, a number of years back Enron, the energy company from Texas filed for bankruptcy and this was a big deal, because some people's life savings were lost.
Third, the markets are also a reflection on how well companies are doing. So if the markets are not strong, it is a reflection that our largest corporations are not profitable. If these companies are not profitable, there will be limitations on jobs.