Which of the following is part of the Economic Environment?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Inflation and interest rates
Option (1) Social values and culture — Incorrect. Customs, traditions, values and lifestyles form the social environment.
Option (2) Technological advancements — Incorrect. New inventions and new methods of producing goods form the technological environment.
Option (3) Legal compliance — Incorrect. Laws, court judgements and the duty to obey them form the legal environment.
Option (4) Inflation and interest rates — Correct. Both are economic factors, like disposable income, stock market indices and the value of the rupee. Inflation changes costs and the prices the firm can charge. Interest rates change the cost of borrowing, and so the demand for goods bought on loan, such as houses and cars.
NCERT (2026-27 Edition): “Dimensions of Business Environment Dimensions of, or the factors constituting the business environment include economic, social, technological, political and legal conditions which are considered relevant for decision-making and improving the performance of an enterprise. …” “Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise. Short and long term interest rates significantly affect the demand for product and services. …” |