Question

Describe any two economic factors affecting business environment.

Hint:

Inflation, interest rates, and income levels directly affect demand, cost, and investment decisions.

Answer 1

Step 1: Meaning of business environment.
The business environment refers to all external and internal forces that influence business decisions. Economic factors are the most significant among them.
Step 2: Important economic factors.
1. Inflation and interest rates:
High inflation reduces the purchasing power of customers and increases costs.
Interest rates determine the cost of borrowing capital for business.
A high rate discourages expansion, while a low rate encourages investment.
2. Economic growth and income level:
The growth of national income and per capita income directly affects demand for goods and services.
Higher income levels improve standard of living and boost business opportunities.
Step 3: Other possible factors.
Exchange rates, taxation policies, unemployment level, and availability of credit also play important roles.
Step 4: Conclusion.
Economic factors strongly influence the stability, profitability, and expansion of businesses.