Economic Environment

Economic Environment

Business fortunes and strategies are influenced by the economic characteristics and economic policy dimensions. The economic environment includes the structure and nature of the economy, the stage of the development of the economy, economic resources, the level of income, the distribution of income and assets, global economic linkages, economic policies, etc.

Nature of economy: The general level of development of the economy has lot of implications for business- it has significant bearing on the nature and size demand, government policies affecting business etc.
Structure of the economy: The structure of the economy- factors such as contribution of different sectors like primary, secondary and tertiary sectors, large, medium, small and tine sectors to the economy, and their linkages, integration with the world economy etc. – are important to business because these factors indicate the prospects for different types of business, certain factors which affect the business etc. For example, if an economy is highly integrated with global economy it will be quickly affected by developments in the global economy.
Economic Policies: There are several economic policies which can have a great impact on business. Important economic policies are industrial policy, trade policy, foreign exchange policy, monetary policy, fiscal policy and foreign investment and technology policy.
Economic Conditions: General economic conditions affect business. Economies pass through periods of boom and recession. A boom is characterized by high level of output, employment and rising demand and prices. A recession has the opposite of these characteristics.