In day-to-day economic commentary and discussion it is common to hear reference to a good or a bad ‘economic environment’ for business. This generally refers to the buoyancy of overall demand or, perhaps, the level of nominal interest rates. While these are, indeed, important elements of the economic environment, it is necessary to think more systematically about the economic environment for business activity in Europe. As was noted in the Introduction to this book, the conduct of business generally involves three elements or stages: the acquisition of resources; the production of a good or service; and distribution and sale. This suggests that many aspects of the economic environment beyond the buoyancy of aggregate demand and the level of interest rates affect the business environment. So, other macroeconomic factors, such as exchange rates, influence business decisions. The environment in which labour is hired is shaped by structural factors, such as skill levels and demography, and the use of labour is influenced by the social and legal norms which prevail. Technological capacity influences the availability and use of numerous assets which affect business activity. Patterns of consumer demand, which reflect cultural and demographic differences, can be seen as part of the economic environment. Finance is a key requirement of business and, consequently, the availability of financial services and the structure of the financial sector are also important aspects of the economic environment. Likewise, the existing structure of firms and industries shapes the opportunities for business. The geographical distribution of population and economic activity defines both opportunities for, and constraints on, business activity. Business is conducted in legal and social contexts which, taking a broad view, could also be seen as part of the economic environment.
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- The economic environment
- Macmillan Education UK
- Chapter 2
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