Environmental economics is a subfield of economics concerned with environmental issues Particular issues include the costs and benefits

of alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming. Classifications of the Economic Environment The economic environment can be classified into:

Microeconomic environment: It includes the economic environment of a

particular industry, firm or household and is primarily concerned with price determination of individual factors. The main consideration from a microeconomic perspective is the efficient allocation of resources. This is necessary to maximize total output.

Macroeconomic environment: It includes all the economic factors in totality. The

main consideration here is the determination of the levels of income and employment in the economy. Over the course of the twentieth century, the focus has shifted from cities and countries to the global economy being the chief economic unit. Factors Affecting the Economic Environment The economic environment of a nation as well as the world is impacted by:

Inflation and deflation: Inflationary and deflationary pressures alter the

purchasing power of money. This has a direct impact on consumer spending, business investment, employment rates, government programs and tax policies. Inflation and Deflation, in economics, terms used to describe, respectively, a decline or an increase in the value of money, in relation to the goods and services it will buy. Inflation is the pervasive and sustained rise in the aggregate level of prices measured by an index of the cost of various goods and services. Repetitive price increases erode the purchasing power of money and other financial assets with fixed values, creating serious economic distortions and uncertainty.

governments rapidly expand spending in anticipation of inflated revenues. poor harvests. A greater concern is the growing pattern of chronic inflation characterized by much higher price increases. Sustained price increases were historically directly linked to wars. housing investment may increase in anticipation of future price appreciation. business. and personal. such creeping inflation is not considered a serious threat to economic and social progress. It may even stimulate economic activity: The illusion of personal income growth beyond actual productivity may encourage consumption. real estate speculation increases. insurance policies.Inflation results when actual economic pressures and anticipation of future developments cause the demand for goods and services to exceed the supply available at existing prices or when available output is restricted by faltering productivity and marketplace constraints. Deflation involves a sustained decline in the aggregate level of prices. or other unique events. Chronic inflation tends to become permanent and ratchets upward to even higher levels as economic distortions and negative expectations accumulate. however. KINDS OF INFLATION When the upward trend of prices is gradual and irregular. Widespread price declines have become rare. normal economic activities are disrupted: Consumers buy goods and services to avoid even higher prices. incentives to acquire savings. and government borrowers realize that loans will be repaid with money that has potentially less purchasing power. . averaging only a few percentage points each year. To accommodate chronic inflation. businesses concentrate on short-term investments. political upheavals. business investment in plants and equipment may accelerate as prices rise more rapidly than costs. and exporting nations suffer competitive trade disadvantages forcing them to turn to protectionism and arbitrary currency controls. at annual rates of 10 to 30 percent in some industrial nations and even 100 percent or more in a few developing countries. and inflation is now the dominant variable affecting public and private economic planning. pensions. such as occurred during the Great Depression of the 1930s. it is usually associated with a prolonged erosion of economic activity and high unemployment. and long-term bonds are reduced because inflation erodes their future purchasing power.

caused the volume of currency in circulation to expand more than 7 billion times and prices to jump 10 billion times during a 16-month period before November 1923.9 percent. In the mid-1960s a chronic inflationary trend began in most industrial nations. This extended history indicates a recurring sequence of inflations.In the most extreme form. and Greece after World War II. in Hungary. and in a few developing nations in recent years. up 3. when prices in the U.0 percent from 1940 to 1948.6 percent. and political stability. down 3. up 4. rose an average of 8.3 percent.5 percent per month. rising at an annual average rate of 7. 1850 to 1873. but detailed records are not available to measure trends before the Middle Ages. From 1965 to 1978 American consumer prices increased at an average annual . Major changes occurred during the American Revolution. and during the French Revolution. and then stabilized from 1948 to 1965. in the USSR and Austria after World War I.9 percent in 1951 during the Korean War.3 percent. 1815 to 1850. when the annual increases averaged only 1. the inflationary financing of budget deficits disrupts economic.S. Other hyperinflations occurred in the United States and France in the late 1700s. and 1920 to 1934. The hyperinflation that occurred in Germany following World War I. 1873 to 1896. The U. causing the entire economic system to break down.2 percent. down 2. chronic price increases become hyperinflation. During a hyperinflation the growth of money and credit becomes explosive. Economic historians have identified the 16th to early 17th centuries in Europe as a period of long-term inflation. As governments try to pay for increased spending programs by rapidly expanding the money supply. followed by long periods of price stability or deflation. including a peak of 5. China.8 percent. HISTORY Examples of inflation and deflation have occurred throughout history.3 percent. These relatively brief flurries were followed by long periods of alternating international inflations and deflations linked to specific political and economic events. up 5. social. reported average annual price changes as follows: 1790 to 1815. although the average annual rate of 1 to 2 percent was modest by modern standards. when prices in France rose at a rate of 10 percent per month. Consumer prices accelerated during the World War II era. down 1.S. 1896 to 1920. destroying any links to real assets and forcing a reliance on complex barter arrangements. linked to wartime periods. for example.

changes in the national income determine consumption and investment rates. The money supply. usually defined as currency and demand deposits. . avoided chronic inflation. the money supply should increase at a stable rate commensurate with the economy's real output capacity. and operating and financing costs. CAUSES Demand-pull inflation occurs when aggregate demand exceeds existing supplies.7 percent.4 percent in 1980. published during the 1930s. thus.2 percent in 1974. rather than the cause of. these disparate results reflected the relative effectiveness of national economic policies. Monetarists believe that changes in price levels reflect fluctuating volumes of money available. Critics of this theory claim that changes in the money supply are a response to. A pervasive cost-price spiral eventually develops as groups and institutions respond to each new round of increases. to create stable prices. and supply-side productivity and cost variables. Deflation occurs when the spiral effects are reversed. forcing price increases and pulling up wages. but some countries. such as West Germany (now part of the united Federal Republic of Germany). Austere government fiscal and monetary policies begun in the early part of the decade combined with sharp declines in world oil and commodity prices to return the average inflation rate to about 4 percent. Several other industrial nations suffered a similar acceleration of price increases. The aggregate level of income theory is based on the work of the British economist John Maynard Keynes. Given the integrated status of most nations in the world economy. including a peak of 12. They argue that. According to this approach. materials. economists have suggested three substantive theories: the available quantity of money. To explain why the basic supply and demand elements change.rate of 5. government fiscal spending and tax policies should be used to maintain full output and employment levels. then. This unfavorable inflationary trend was reversed in most industrial nations during the mid-1980s. This ominous shift was followed by consumer price gains of 13. Cost-push inflation occurs when prices rise to cover total expenses and preserve profit margins. price-level adjustments. the aggregate level of incomes.3 percent in 1979 and 12.

The third theory concentrates on supply-side elements that are related to the significant erosion of productivity. EFFECTS The specific effects of inflation and deflation are mixed and fluctuate over time. Inflation initially increases business profits. In the U. and foreign trade. or informally. potential real estate price appreciation may attract buyers. leading to more capital investment and payments of dividends and interest. Personal spending may increase because of “buy now. but only if the fundamental causes of the original deterioration are corrected. as wages and other costs lag behind price increases.should be adjusted to finance the desired level of economic growth while avoiding financial crises and high interest rates that discourage consumption and investment. Domestic inflation may temporarily improve the balance of trade if the same volume of exports can be sold at higher prices. the growth of government spending plus “off-budget” outlays (expenditures for a variety of programs not included in the federal budget) and government credit programs have been more rapid than the potential real growth rate since the mid-1960s. however. These supply-side issues may be important in developing monetary and fiscal policies. investment.. Government spending and tax policies can be used to offset inflation and deflation by adjusting supply and demand according to this theory. the shift away from manufacturing activities.S. social and political developments that have reduced work incentives. Deflation is typically caused by depressed economic output and unemployment. Lower prices may eventually encourage improvements in consumption. it will cost more later” attitudes. and various economic shocks such as international monetary and trade problems. These elements include the long-term pace of capital investment and technological development. the rapid proliferation of government regulations. changes in the composition and age of the labor force. the growing scarcity of certain raw materials. and sporadic worldwide crop disasters. the diversion of capital investment into nonproductive uses. Government spending rises because many programs are explicitly. large oil price increases. indexed to inflation rates to preserve the real value of government services and transfers of .

Higher mortgage interest rates and rapidly escalating prices for homes discourage housing construction. and profits are restricted as employees demand immediate relief from chronic inflation through automatic cost-of-living escalator clauses. Inflation is a major element in the prevailing pattern of booms and recessions that cause unwanted price and employment distortions and widespread economic uncertainty. Higher export prices eventually restrict foreign sales. personal. such as savings accounts. raw materials. Most raw materials and operating costs respond quickly to inflationary signals. to draw on their savings and increase personal debts. business. pensions. insurance policies. Business investment suffers as overall economic activity declines. People with relatively fixed incomes. particularly if the pace fluctuates. particularly those in low-income groups. creating deficits in trade and services and international currency-exchange problems. discourages consumer spending. may keep pace with or exceed the average inflation rate. Inflation erodes the real purchasing power of current incomes and accumulated financial assets. particularly if consumers are unable. Despite these temporary gains. Workers in the private sector strive for cost-of-living adjustments in wage contracts. The impact of inflation on individuals depends on many variables. suffer erosion of real wealth. while those with flexible bargaining power may keep pace with or even benefit from inflation. Officials may also anticipate paying larger budgets with tax revenues from inflated incomes. and durable goods. A pervasive “inflationary psychology” eventually dominates private and public economic decisions. suffer during accelerating inflation. and government loans are paid with money that loses purchasing power over time and interest rates tend to lag behind the average rate of price increases. Interest rates typically include the anticipated pace of inflation that increases business costs. inflation eventually disrupts normal economic activities. such as real estate. and long-term debt instruments. because mortgage. Borrowers usually benefit while lenders suffer. or unwilling.income. resulting in reduced consumption. however. other assets with flexible values. Those dependent on assets with fixed nominal values. art. and depresses the value of stocks and bonds. STABILIZATION MEASURE .

Monetary officials. Among the initiatives that have been recommended are the reversal of the serious deterioration of national productivity by increasing incentives for savings and investment. cannot unilaterally create economic stability if private consumption and investment cause inflation or deflation pressures or if other public policies are contradictory. such initiatives must be sustained rather than merely occasional fine-tuning actions that often exaggerate existing cyclical changes. Government spending and tax policies must be consistent with monetary actions so as to achieve stability and prevent exaggerated swings in economic policies. whereas fiscal and monetary stimulus typically increases economic activity before prices accelerate. risky. improvement of management techniques and labor efficiency through education and training. enlarged spending for the development and application of technology. Since the mid-1960s the rapid growth of federal budget spending plus even greater percentage increases in off-budget outlays and a multitude of federal lending programs have exceeded the tax revenues almost every year. an accommodative policy during cyclical recessions helps finance recovery.Any serious anti-inflation effort will be difficult. Over extended periods the Federal Reserve System can influence the availability and cost of money and credit by controlling the financial reserves that are required and by other regulatory procedures. Effective stabilization efforts will require a better balance and a more sustained application of both monetary and fiscal policies. however. The fundamental requirement is stable expansion of money and credit commensurate with real growth and financial market needs. Important supply-side actions are also required to fight inflation and avoid the economic stagnation effects of deflation. Pressures to provide money and credit required for private consumption and investment and for financing the chronic budget deficits and government loan programs have led to a rapid expansion of the money supply with resulting inflation problems. . This pattern of economic and political risks and incentives explains the dominance of expansion policies. creating large government deficit borrowing requirements. To be effective. Stabilization efforts try to offset the distorting effects of inflation and deflation by restoring normal economic activity. Monetary restraint during cyclical expansions reduces inflation pressures. and prolonged because restraint tends to reduce real output and employment before benefits become apparent.

Some analysts have recommended the use of various income policies to fight inflation. by lending it to the borrower. Advocates claim that government intervention would supplement basic monetary and fiscal actions. economic principles and programs adopted by a government that manage the growth of its money supply. price stability and economic growth. An interest rate is the price a borrower pays for the use of money they borrow from a lender.expanded efforts to conserve valuable raw materials and develop new sources. for instance a small company might borrow capital from a bank to buy new assets for their business. in relation to foreign exchange of money. to simple voluntary standards suggested by the government. Interests rates are fundamental to a Capitalist society. the price of a country's currency expressed in terms of one unit of another country's currency. Interest rates targets are also a vital tool of monetary policy and are taken into account when dealing with variables like investment. and reduction of unnecessary government regulation. and . rents. and unemployment. prices. and interest rates. See also Business Cycle. but critics point to the ineffectiveness of past control programs in the United States and other industrial nations and also question the desirability of increasing government control over private economic decisions. Exchange Rate. Such policies range from mandatory government guidelines for wages. Money. • Monetary and fiscal policy: This helps in attaining full employment. and the return a lender receives for deferring the use of funds. through tax incentives and disincentives. • Exchange rates: This impacts the price of imports. inflation. Interest rates are normally expressed as a percentage rate over the period of one year. the profits made by exporters and investors and employment levels (also through the impact on the tourism industry). Finance. • Interest rates: Interest rates determine the cost of borrowing and the flow of money towards businesses. Future stabilization policy initiatives will likely concentrate on coordinating monetary and fiscal policies and increasing supply-side efforts to restore productivity and develop new technology. the availability of credit. Monetary Policy.

Once these determinations are made. the government leaves individuals and businesses with more money to purchase goods or invest in new equipment. government policy related to taxation and public spending. including the level of economic growth or unemployment likely in the future. By increasing spending or cutting taxes. and governments use them in an attempt to maintain economic growth. Another important decision a government must make regarding fiscal policy is whether or not to run a budget deficit by spending more money than the . sales tax. It is expansionary or loose when taxation is reduced or public spending is increased with the aim of stimulating total spending in the economy. On the other hand. the government can decide how to raise revenue and how to allocate it. pressure on prices (see Inflation and Deflation). Expansionary policy might occur when a government feels its economy is not growing fast enough or unemployment is too high. These factors will affect the amount of revenue raised through taxes and the amount of money required for government programs. fiscal policy is contractionary or tight when taxation is increased or public spending is reduced in order to restrict demand and slow down the economy. a government must make judgments about a number of factors. and. or to pay expenses such as government employees' salaries. Fiscal policy can be either expansionary or contractionary. fund government programs. Fiscal policy and monetary policy. are the two most important components of a government's overall economic policy. A contractionary fiscal policy reduces the amount of money in the economy available for purchasing goods. creating jobs and generating more spending. In the United States. To determine its fiscal policy. or customs duties—and can be allocated to build new roads. ultimately. Fiscal Policy. they raise demand. The result is higher employment and a growing economy. which is concerned with money supply. thus decreasing spending. and low inflation. known as aggregate demand. A tigh fiscal policy is more likely when inflation is high. high employment. the Federal Reserve Board determines monetary policy. which requires additional production. demand. When individuals or firms increase their purchases. Revenue is generated through a combination of different taxes—for example income tax.interest rates.

a government also needs to consider the fiscal policies of other countries. Few governments will find it easy to raise taxes or to decrease funding for programs that have strong support from the public. the Microeconomics will take a very important part in business so do in the economic environment in next 200 years. The economic environment is also influenced by various political. it will take over the businesses in every way. Some countries may find their fiscal policy decisions constrained by the requirements of the International Monetary Fund (IMF). the interest rate. In other word. such as beliefs about the size of the role that governments should play in the economy. If the government borrows money. Decisions on fiscal policy are inevitably influenced by political considerations. Economic Environment in the Next 200 years Based on some of the facts and regarding the factors that affect the economic environment we are assuming that the economic environment condition in the next 200 years will be taken by small enterprises business or what we’re pointing the Microeconomics businesses will continue developing until it dominate the economic environment 200 years later. which may tempt companies to relocate by offering them generous tax programs or other government-controlled benefits. which often grants aid packages subject to conditions relating to fiscal policy. outside factors as well. may rise. So. The Richest Country in the Next 200 years . Deficits can be financed in two ways— borrowing or printing more money. In today's global economy. or the likely public reaction to a particular course of action. without a corresponding increase in available goods. social and technological factors. it will decrease the supply of money available in the economy for lending. Fiscal policy decisions can be influenced by other. in our own opinion. The country that had the most small enterprises business will rule the economy or will be the richest country. it will increase the supply of money in the economy. If the government prints more money. such as social security or defense. These include a change in government and the development of new technology and business tools. and the cost of borrowing money.government raises (see Budget). prices—and inflation—are likely to rise.

For instance. In additional. inflation and etc. the government is targeting 20% less loans in 2010. So. indicating that 2009 was likely a once-off spike to counter the effects of the 2008/09 global financial crisis. because fundamental investors with in-depth understanding of China rightly point out that while loans growth increased by 95% in 2009 (compared with 35% in 2008 and 16% in 2007). we conclude that the economy in China will continue increasing every year until the next 200 years.In our opinion the richest country in the next 200 years is China. we have observed that china has the best economic rate. China is concerned about high property prices. . the government controls the property sector with regulatory and financial policies such as regulating housing developers and increasing down-payment for housing loans to cool speculation. mortgage financing mechanism in China requires consumers to put at least 30% down-payment for the first house loan and 50% down-payments for additional house loans.

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