THE ECONOMIC ENVIRONMENT ( )
The economy comprises millions of people and thousands of firms as well as the government and local authorities, all taking decisions about prices and wages, what to buy, sell, produce, export, import and many other matters. All these organizations and the decisions they take play a prominent part in shaping the business environment in which firms exist and operate.
The economy is complicated and difficult to control and predict, but it is certainly important to all businesses. You should be aware that there are times when businesses and individuals have plenty of funds to spend and there are times when they have to cut back on their spending. This can have enormous implications for business as a whole.
When the economy is enjoying a boom, firms experience high sales and general prosperity. At such times, unemployment is low and many firms will be investing funds to enable them to produce more. They do this because consumers have plenty of money to spend and firms expect high sales. It naturally follows that the state of the economy is a major factor in the success of firms.
However, during periods when people have less to spend many firms face hard times as their sales fall. Thus, the economic environment alters as the economy moves into a recession. At that time, total spending declines as income falls and unemployment rises. Consumers will purchase cheaper items and cut expenditure on luxury items such as televisions and cars.
Changes in the state of the economy affect all types of business, though the extent to which they are affected varies. In the recession of the early 1990s the high street banks suffered badly. Profits declined and, in some cases, losses were incurred. This was because fewer people borrowed money from banks, thus denying them the opportunity to earn interest on loans, and a rising proportion of those who did borrow defaulted on repayment. These so-called "bad debts" cut profit margins substantially. Various forecasters reckoned that the National Westminster Bank's losses in the case of Robert Maxwell's collapsing business empire amounted to over £100 million.
No individual firm has the ability to control this aspect of its environment. Rather, it (economic environment) is the outcome of the actions of all the groups who make up society as well as being influenced by the actions of foreigners with whom the nation has dealings.
VOCABULARY NOTES
to comprise - ,
local authorities -
to take (syn. to make) decisions -
to play a prominent part - ()
to shape the environment - , ,
to predict (syn. to forecast) ,
to be aware - ,
to cut back on spending -
enormous implications - , ,
general prosperity -
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to enable smb to do smth - -, - -
consumers -
to alter -
a recession -
total spending - ,
to decline -
income -
unemployment -
to purchase (syn. to buy) -
to cut expenditure -
luxury items -
to affect (syn. to influence smb, smth) -
the extent -
to some extent -
the high street banks -
to suffer badly -
profits -
to incur (syn. to bear, to suffer) losses - ,
to borrow from - ,
to deny the opportunity -
to deny -
to earn interest -
loans - ,
to default on repayment - (, . .)
a debt -
profit margins -
the outcome of the actions -
to make up society -
to have dealings - ()
