Economic Environment PDF

ECONOMIC ENVIRONMENT  What is economic..?? Economic means "pertaining to the production and use of income.” Economic Activities - Money earning & Spending  What is environment..?? Circumstances, influences, stresses, and competitive, cultural, de...

ECONOMIC ENVIRONMENT  What is economic..?? Economic means "pertaining to the production and use of income.” 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 Elements of Economic Environment Economic Conditions Economic System Economic Policies International Economic Environment Economic Legislations Economic Conditions Stages of Business Cycle National Income, Per Capita Income and 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 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  Economic Policies 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 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 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 country’s 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.