What is economic..??

Economic means "pertaining production and use of income. to the Economic Activities - Money earning & Spending

What is environment..??
Circumstances, influences, stresses, and competitive, cultural, demographic, economic, natural, political, regulatory, and technological factors that affects the survival, operations, and growth of an organization.

ECONOMIC ENVIRONMENT
Economic factors which have their affect on the working

of the business. Includes system, policies and nature of an economy, trade cycles, economic resources, level of income, distribution of income and wealth etc. Represents the economic conditions in the country where the international organization operates. Aggregate of the nature of economic system of the country, business cycles, the socio-economic infrastructure etc. Dynamic and complex in nature.

Features of Economic Environment

Directly Related with Economic Activities

Impact of Non Economic Factors

Impact of Basic Infrastructure Impact of Ideology of the People

Availability of Capital
Economic Disparities Directives of the Government

Economic Planning
Ideology of the Government & Economic System Public Morality

Objectives of Economic Environment

Proper Functioning of an Economy

Knowledge of New Opportunities & Resources

Study of Environmental Factors Optimum Use of Environment

Minimizing ill effects

Classifications of the Economic Environment

Microeconomic environment: It includes the economic environment of a particular industry, firm or household and is primarily concerned with price determination of individual factors. Efficient allocation of resources. This is necessary to maximize total output. Macroeconomic environment: It includes all the

economic factors in totality. The main consideration here is the determination of the levels of income and employment in the economy.

Factors Affecting the Economic Environment

Inflation and deflation: Inflationary and deflationary pressures alter the purchasing power of money. Direct impact on consumer spending, business investment, employment rates, government programs and tax policies. Interest rates: Determine the cost of borrowing and the

flow of money towards businesses. Exchange rates: Affects price of imports, the profits made by exporters and investors and employment levels (also through the impact on the tourism industry). Monetary and fiscal policy: Helps in attaining full employment, price stability and economic growth.

Elements of Economic Environment

Economic Conditions
Economic System Economic Policies

International Economic Environment

Economic Legislations

Economic Conditions
Stages of Business Cycle National Income, Per

Distribution of Income Rate of Capital Formation Demand and Supply Trends Inflation Rate in the Economy Industrial Growth Rate, Exports Growth Rate Interest Rate prevailing in the Economy Trends in Industrial Sickness Efficiency of Public and Private Sectors Growth of Primary and Secondary Capital Markets Size of Market

Capita

Income

and

Economic Systems
Framework of rules, goals and incentives that controls

economic relations among people in a society.

Helps in providing framework for answering the basic

economic questions.
Different countries of a world have different economic

systems.

Type of Economic Systems

Capitalism:Business units or factors of production are privately owned
and governed is called Capitalism. Profit earning is the main objective. Least government interfere. Also known as free market economy.

Socialism
All the economic activities of the country are controlled and regulated by the Government in the interest of the public. Democratic Socialism:- All the economic activities are controlled and regulated by the government but the people have the freedom of choice of occupation and consumption. Totalitarian Socialism:- This form is also known as Communism. Under this, people are obliged to work under the directions of Government.

Mixed Economy Both public and private sectors co-exist is known as Mixed Economy. Some factors of production are privately owned and some are owned by Government. There exists freedom of choice of occupation and consumption. Both private and public sectors play key roles in the development of the country.

Characteristics Of an Economic System

National Entity

Institutional
Interdependence Scarcity of Resources Need Satisfaction Dynamic

 Government frames economic policies. Economic Policies affects the different business units in different ways. The Government may grant subsidies to one business or decrease the

Economic Policies

rates of excise or custom duty or the government may increase the rates of custom duty and excise duty, tax rates for another business. Economic policies play an important role in the business policy formulation. 1. Monetary Policy:- The policy formulated by the central bank of a country to control the supply and the cost of money (rate of interest), in order to attain some specified objectives is known as Monetary Policy. 2. Fiscal Policy/budgetary policy: It is related with the income and expenditure of a country. Fiscal Policy works as an instrument in economic and social growth of a country. It is framed by the government of a country and it deals with taxation, government expenditure, borrowings, deficit financing and management of public debts in an economy.

3. Foreign Trade Policy:- It also affects the different business

units differently. E.g. if restrictive import policy has been adopted by the government then it will prevent the domestic business units from foreign competition and if the liberal import policy has been adopted by the government then it will affect the domestic products in other way.

4. Foreign Investment Policy:- Policy for the investment by the foreigners in a country is known as Foreign Investment Policy. If the government has adopted liberal investment policy then it will lead to more inflow of foreign capital in the country which ultimately results in more industrialization and growth in the country. 5. Industrial Policy:- promotes and regulates the industrialization in the country. The government from time to time issues principals and guidelines under the industrial policy of the country.

International Economic Environment

Important role of international business environment. MNCs are influenced by economic environment of both

home countrys and the country they are working in.

Various rules and guidelines for these trades which are

issued by many organizations like World Bank, WTO, United Nations, IMF etc.

Economic Legislations
Besides the above policies, Governments of different countries frame various legislations which regulates and control the business.