1.5 Assessment

Question 1

What is fiscal policy?

Answer 1

Government decisions about taxes and public-sector spending

Question 2

What is monetary policy?

Answer 2

The Bank of England’s decisions about interest rates, in order to support the economy and control inflation.

Question 3

What is inflation?

Answer 3

The rate at which prices in the UK increase each year, shown as a percentage

Question 4

Why is high inflation bad for a business?

Answer 4

• It increase the costs of the goods that they are buying

- the demand in there reduces will fall

Question 5

What is interest rate?

Answer 5

The cost of borrowing money, expressed as a percentage of the amount borrowed.

Question 6

Why is a high rate of interest bad for a business?

Answer 6

• it increases the costs of businesses with a bank overdraft or a bank loan
• there is a decrease in the demand for their products because customers have less disposable income

Question 7

Why is a low rate of interest good for a business?

Answer 7

• there is a decrease in the costs of businesses with a bank overdraft or a bank loan.
• it increases the demand for their product because consumers have more disposable income.

Question 8

What is exchange rate?

Answer 8

The value of one currency into another e.g (pounds into dollars)

Question 9

How do you convert pounds into other currency’s?

Answer 9

You multiply the amount of pounds times the exchange rate and then you have the amount of pounds into the currency e.g dollars and euros

Question 10

How do you convert back into pounds from euros?

Answer 10

divide the amount of euros by the exchange rate (e.g. 12 euros ÷ 1.20 = £10)

Question 11

What is the impact on the business if the pound increases?

Answer 11

Bad news for UK businesses that are exporting to other countries, as their goods become more expensive in those countries, so demand decreases.
• Good news for UK businesses that are importing from other countries, as those goods become cheaper for the UK businesses

Question 12

What is unemployment?

Answer 12

Unemployment refers to the numbers of people who are not in employment, training or education. This only takes into account those who are able to work, as so people with a disability which prevents them from working are not included in this measure.

Question 13

What is the impact of unemployment?

Answer 13

High levels of unemployment might indicate that the economy is not performing well and businesses have reduced the number of staff needed to save on costs.

Question 14

What is the impact of unemployment?

Answer 14

High level of unemployment might be beneficial for businesses as workers may work for less (however, the national minimum wage prevents this being too low).

Question 15

What is unemployment?

Answer 15

High levels of unemployment may be beneficial for a businesses as they get a bigger pool of applications for jobs which means they get a better candidate.

Question 16

What is an impact of unemployment?

Answer 16

High levels of unemployment might mean people have less disposable income to spend in businesses.

Question 17

What is income?

Answer 17

Income is the amount of money that a person earns per week, month or year.

Question 18

What is disposable income?

Answer 18

The amount of money available to spend by an individual after they have paid for all of their essential bills.

Question 19

Impact of disposable income?

Answer 19

The more disposable income people have the better this is for business. This is because they are likely to spend someh of this money on luxury items which will increase businesses sales.
When people have lower levels of disposable income business who sell luxury items might suffer more than for example a supermarket. This is because people will prioritise their needs and allocate their income towards this.