The National Economic Environment

This chapter has reviewed the structure of national economies and the flow of income between different elements of the economy. Producers, consumers and government are interrelated in the circular flow of income. Business cycles occur because the speed of the circular flow of income temporarily increases or decreases. Although governments seek to limit the magnitude of the business cycle, the cycle can pose problems (and opportunities) for business organizations. The rate at which an organization can grow can be constrained by the rate at which the national economy is growing (Chapter 8). This chapter has reviewed economic indicators that companies can read in order to better understand and predict the environment in which they operate. A good information system (Chapter 4) should be able to analyse leading indicators of the economy rapidly and effectively.

The state of the economic environment is very much influenced by politicians, and the interaction between the economic and political environments is developed further in Chapter 2. This chapter has recognized that the national economic environment is part of the international economic environment and international economic issues are discussed in Chapter 14.