ECONOMIC ENVIRONMENT INTRODUCTION

Economy And Environment

Economy: A system of producing, distributing and consuming wealth by careful planning and use. Environment: It is the area in which something exists or live. It is also the totality of surrounding conditions.

Definition Of Economic Environment

Totality of Economic Factors such as employment, income, inflation, interest rates, productivity, and wealth, that influence the buying behavior of consumers and firms.

Major Components Of The Economic Environment

Income and Wealth Employment Levels Productivity

Income And Wealth

Income in an economy is measured by GDP, GNP and Per Capita Income. High value of these factors show a progressive Economic Environment.

Employment Levels
High level of employment represents positive picture of the economy. Partial employment and disguised Unemployment are also the aspects of employment levels.

Productivity
This is the Output generated by the given amount of Inputs. High level of productivity supports the Economic Environment.

Objectives Of Economic Environment

Proper functioning of economy. Knowledge of new opportunities and resources. Removal of obstacles and challenges. Minimizing ill-effects. Helps in studying the changeable environment.

DEFINING LIBERALIZATION, PRIVATIZATION AND GLOBALIZATION (LPG)

WHAT IS LIBERALIZATION?

It is the relaxation of previous government restrictions usually in the area of social and economic policies.

WHAT IS PRIVATIZATION?

The process of transferring ownership of public sector industries to private sector.

WHAT IS GLOBALIZATION?

It is the process by which regional economies, societies and cultures have become integrated through a global network of communication, transportation and trade.

 Indian economy was in deep crisis in 1991. Inflation rate went up to 17%. Foreign currency reserve came down to almost 1 Billion Dollars. Foreign investors and NRI,s lost confidence in Indian economy.

HOW LPG CAME INTO EXISTANCE IN INDIAN ECONOMY?

MEASURES TAKEN TO OVERCOME THIS CRISIS

Devaluation of Indian currency by 1819% to settle the balance of payments. Allowing foreign direct investment. Abolition of the MRTP Act. The removal of quantitative restrictions on import. Reduction in tariff barriers.

IMPACT OF LPG ON INDIAN ECONOMY

GDP went up to 9.2% in the year 2006-2007. Foreign exchange reserve went up to 180 Billion Dollars. FDI inflows went up to 43 Billion Dollars. India is controlling 40% of global outsourcing market at present.

Factors Affecting The Economic Environment

Inflation and Deflation Interest rates Exchange rates Monetary and Fiscal policy.

Classification of Economic Environment

Micro Economics Macro Economics

Micro Economics
It includes the economic environment of a particular industry, firm, or household, Its main consideration is efficient allocation of resources to maximize output.

Features Of Micro Economics

Study of individual units. Microscopic study of the Economy. Pricing is the core of micro economics. Study of economic welfare. Science of Economizing. Tools for evaluating economic policies. Understanding the working of economy.

Macro Economics
It includes all the economic factors in totality. Main purpose is to determine the level of income and employment in the economy.

Features of Macro Economics

It provides exploration to the functioning of an economy. Policy orientation. National Income. Dynamic Science.

Conclusion
Income, wealth, employment level and productivity are the major contributors in assessing the economy. Micro economics is a tool for evaluating economic policies. Macro Economics is a tool to compute and use national income.