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Definition of Business Environment is sum or collection of all internal and external factors such as employees, customers needs and expectations, supply and demand, management, clients, suppliers, owners, activities by government, innovation in technology, social trends, market trends, economic changes, etc.
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From Business Environment
Internal environment includes factors within the firm like objectives, structure, leadership, culture, resources and capabilities (mostly controllable).
External environment includes factors outside the firm like customers, competitors, suppliers, government policies, economic conditions and social trends (mostly uncontrollable).
Both together influence business decisions and performance.
Interest rate changes affect borrowing and spending:
Therefore, interest rates influence both business finance and consumer demand.
The economic environment consists of macro factors like GDP growth, inflation, interest rates, employment and government economic policies. These factors affect business by changing demand, cost, and credit conditions.
Economic factors → Cost + Demand + Credit conditions → Business decisions (price/production/investment)
Hence, firms continuously monitor economic environment for planning and strategy.