Demonetisation is a component of economic environment of business. Economic environment refers to broad characteristics of the economic system in which a business enterprise operates.
Following are the components of economic environment:
1. Relative role of private and public sectors.
2. Growth rate of GNP and per capita income at current and constant prices.
3. Rates of savings and investments.
4. Volume of imports and exports of different items.
5. Balance of payment and changes in foreign exchange reserves.
6. Agricultural and industrial production trends.
7. Money supply in the economy.
A business enterprise is an economic institution and therefore, economic environment exercises significant influence on business. For example, reduction in rate of interest reduces the cost of capital and thus encourages more investment in business operations. Similarly taxation policy, monetary policy and industrial policy of the government influences the working of the organisation. A rise in the disposable income of people due to increase in national income creates increasing demand for products.