2.3 Economical climate

Question 1

Effects of the economic climate on businesses.

Answer 1

• Unemployment
• Changes in consumer spending
• Interest rates
• Government taxation
• Exchange rates
• Inflation

Question 2

Effect of fluctuating interest rates on businesses depending on loans and and overdrafts for finance.

Answer 2

• Fall: charged less interest when borrowing so encourage businesses to invest in new technologies, expand into international markets or hire more staff.
• Rise: charged more when borrowing so they may scale down on plans or production to reduce costs affecting business productivity, growth, sales and competitiveness.

Question 3

Effect of fluctuating interest rates on customers.

Answer 3

• Fall: charged less interest when borrowing so encourage consumer spending on more luxury goods.
• Rise: charged more when borrowing so encourage saving and spending/borrowing less, certainly on luxury goods.

Question 4

Effect of level of unemployment on businesses

Answer 4

• Rise: less disposable income means lower sales overall, certainly for luxury brands and higher sales for brands selling cheap necessities.
• Fall: more disposable income means more sales overall, certainly for luxury brands and lower sales for brands selling cheap necessities.

Question 5

Effects of fluctuating incomes on product demands.

Answer 5

• More income: more disposable income means increase in luxury good demands and decrease in cheaper, necessity products.
• Less income: less disposable income means more careful spending so, decrease in luxury good demands and increase in cheaper, necessity products.