Question

Which of the following is an example of economic environment?

• A. Money supply in economy
• B. Constitution of the country
• C. Life expectancy
• D. Population shifts

Answer 1

The Correct Option is A

In Business Studies, the term economic environment refers to all external economic factors that influence buying habits, consumer behavior, and business operations. These factors include aspects such as inflation rates, interest rates, economic growth patterns, and the money supply within an economy.

The correct answer to the question regarding examples of economic environment is: Money supply in economy.

Here’s why:

• Money supply in economy: This is a direct component of the economic environment. It affects inflation, interest rates, and the purchasing power of money, which in turn impacts business operations and economic stability. Changes in money supply significantly influence economic activity.
• Constitution of the country: This is part of the legal and political environment, not the economic environment. It establishes the laws and principles governing a state and its people.
• Life expectancy: This pertains to the social environment as it relates to the average period an individual is expected to live, influencing health care and welfare policies.
• Population shifts: These are demographic factors and part of the social environment, affecting market demographics and consumer needs rather than economic conditions alone.

Answer 2

Options Analysis

Money Supply in the Economy

Economic Dimension: The money supply is a key economic indicator that affects inflation, interest rates, and overall economic activity. It is directly related to monetary policy and financial markets.

Explanation: The money supply influences economic conditions such as inflation, interest rates, and economic growth. It is a fundamental component of the economic environment.

Constitution of the Country

Legal Dimension: The constitution outlines the fundamental principles and laws governing a country. It sets the framework for the legal system and governance.

Explanation: While the constitution can have indirect economic implications, it is primarily a legal document that defines the structure and powers of government and the rights of citizens.

Life Expectancy

Social Dimension: Life expectancy is a measure of the average lifespan of individuals in a population. It reflects health conditions, living standards, and social well-being.

Explanation: Life expectancy is influenced by social factors such as healthcare, lifestyle, and social policies. It is a key indicator of social development rather than economic conditions.

Population Shifts

Social Dimension: Population shifts refer to changes in the distribution of the population, such as urbanization, migration, or demographic changes.

Explanation: Population shifts can have economic implications, but they are primarily social phenomena that reflect changes in living conditions, employment opportunities, and social policies.

Conclusion

The correct answer is: (1) Money supply in the economy

This is because the money supply is a direct economic indicator that affects key aspects of the economy, such as inflation, interest rates, and economic growth. It is a fundamental component of the economic environment.