The Economic Environment

The survival and success of each and every business enterprise depend fully on its economic environment. Broadly divided, the economic environment includes
economic conditions, economic policies and economic system of the country. The economic policies of a nation refer to a set of economic factors that have great influence on business organizations and their operations. These include gross domestic product per capital income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market
etc. All these help in improving the pace of economic growth. Second, Economic policies. All business activities and operations are directly influenced by the
economic policies framed by the government from time to time. Some of the important economic policies are, Industrial, fiscal, monetary, foreign investment,
export-import (EXIM) policies. The government keeps on changing these policies from time to time in view of the development, taking place in the economic scenario, political expediency and the changing requirements. Every business firm has to function strictly within the policy framework and respond to the changes therein. Third, business system, is primarily governed by the three types of economic systems, viz (i) capitalist economy; (in) socialist economy; and (ili) Mixed economy. Broadly classified, the following are the main economic factors that the business must contend with if they must succeed, grow and develop. They are the economic growth rate of the country, interest rate, inflation rate, exchange rate, availability of credit, level of disposable income, propensity of people to spend, federal government budget, Gross Domestic Product Trend, unemployment trend, stock market trend, price fluctuations, etc.