This document discusses key aspects of a country's economic environment that affect business operations. It defines economic environment and lists factors such as the economic system, policies, business cycles, and resource availability. The main economic systems described are capitalism, socialism, and mixed economies. Key economic policies discussed include monetary, fiscal, foreign trade, foreign investment, and industrial policies. The document also outlines some macroeconomic indicators like growth rates, savings and investment rates, inflation, and fiscal imbalance that influence business conditions.

1. ECONOMIC ENVIROMENT OF BUSINESS

2. INDEX
 Economic Environment,
 Economic Systems,
 Economic Policies,
 Macroeconomics.

3. Various environmental factors such as:
 Economic environment,
 Socio-cultural environment,
 Political,
 Technological,
 Demographic and
 International
Affect the business and its working. Out of these factors
economic environment is the most important factor.

4. ECONOMIC ENVIRONMENT
• Those Economic factors which have their affect on the
working of the business is known as economic
environment.
• It includes system, policies and nature of and
economy, trade cycles, economic resources, level of
income, distribution of income and wealth etc.
• The economic environment represents the economic
conditions in the country where the international
organization operates.

5.  Economic environment refers to the aggregate of the
nature of economic system of the country, business
cycles, the socio-economic infrastructure etc.
 Economic environment is very dynamic and complex
in nature. It does not remain the same. It keeps on
changing in an economy like change in Govt. policies,
political situations.

6. Economic Systems
An Economic System of a nation or a country may be
defined as a framework of rules, goals and incentives
that controls economic relations among people in a
society. It also helps in providing framework for
answering the basic economic questions. Different
countries of a world have different economic systems
and the prevailing economic system in a country affect
the business units to a large extent.

7. Economic conditions of a nation can be of any one of
following type:
 Capitalism: The economic system in which business units
or factors of production are privately owned and governed
is called Capitalism. The profit earning is the sole aim of
the business units. Government of that country does not
interfere in the economic activities of the country. It is also
known as free market economy. All the decisions relating to
the economic activities are privately taken. Examples of
Capitalistic Economy:- England, Japan, America etc.

8.  Socialism: Under socialism economic system, all the economic
activities of the country are controlled and regulated by the
Government in the interest of the public. The first country to adopt
this concept was Soviet Russia. The two main forms of Socialism are:
(a) Democratic Socialism: All the economic activities are controlled
and regulated by the government but the people have the
freedom of choice occupation and consumption.
(a) Totalitarian Socialism: This form is also known as Communism.
Under this, people are obliged to work under the directions of
Government.

9.  Mixed Economy: The economic system in which 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.

10. Economic Policies
Government frames economic policies. Economic Policies
affects the different business units in different ways. It may
or may not have favorable effect on a business unit. The
Government may grant subsidies to one business or
decrease the rates of custom duty and excise duty, tax rates
for another business. All the business enterprises frame
their policies keeping in view the prevailing economic
policies. Important economic policies of a country are as
follows:

11.  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.
 Fiscal Policy: It may be termed as 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.

12.  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.
 Foreign Investment Policy: The policy related to 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.

13.  Industrial Policy: Industrial policy of a country
promotes and regulates the industrialization in the
country. It is framed by government. The government
from time to time issues principals and guidelines
under the industrial policy of the country.

14. Macroeconomic Scenario
 Rates of Growth: Steady rise in the income of the people lead to
increase in the demand of various goods. During the period of high
growth demand for capital goods industries and intermediate goods
industries. In case of slow growth the aggregate demand is very
reduced. For example in Indian Economy the growth rate decreased
from 8.5% (2007-08) to 2.7 percent in 2008-09.

15.  Rates of Savings and Investment: Generally, a high
investment rate is sustained by an equally high domestic
savings rate. Hence, as investment in industries increases,
the scope for business activity grows as their growth
requires massive investment in them. During 1980s and
Mid-1990s China, Korea, and South-Asian countries
showed a rapid economic growth as their rate of
investment was as high as 30%. The gross domestic saving
in India is 27.8% (2010-14).

16.  Inflation: An increase in general price level is defined as
inflation. A slight inflation is good for the economy as the
prices will increase leading to increase in the profits and this
encourages the Entrepreneurs to produce more. If we see
from the consumer point of view, the purchasing power
decreases that means low savings and low investment
resulting in slow growth.

17.  Fiscal Imbalance: It is defined as the situation where
the revenue doesn’t match the level of expenditures of
the government. Thus, it is the deliberate increase in
the expenditure of government than the revenues
which is done to overcome a situation of depression for
example, The Great Depression in 1930s and
Depression in 2008-09.

18. This step creates an additional demand in market and thus
saves it from depression. Deficit financing leads to an
immediate increase in the purchasing power in the hands of
the people while production doesn’t change simultaneously
There is likely to be a time-lag in the generation of the extra
purchasing power and the availability of additional consumer
goods.

19. Monetary policy: The policy decisions in the Indian
economy is taken by RBI. Various instruments of the
monetary policy are the Repo-Rate, Reverse repo-rate,
Statutory liquid ratio, Cash reserve ratio. The recent
example of the decrease in SLR rate by Raghuram
Rajan will infuse about 40,000 crore rupees in market.
Thus the credit availability is easy and there will be
more investment.

20. SUBMITED BY:
Ronak Baghla
L-95