2.3 The economic climate of business

Question 1

What is the economic climate

Answer 1

Describes the state of key factors within a country such as the level of goods and services produced and the number of jobs available

Question 2

Economy

Answer 2

Is the state of a countries production and consumption of goods and services

Question 3

A boom

Answer 3

Is when the economy is growing significantly and the businesses in it are generally doing well

Question 4

Recession

Answer 4

Economy output falls this can lead to a business have a fall in demand for their product or service

Question 5

Factors that indicate the state of an economy

Answer 5

• Consumer spending

* Unemployment

Question 6

How can ‘consumer spending’ indicate the state of an economy

Answer 6

• unemployment - if someone loses their job they will spend less
• Reduced customer confidence - concerned about the future so consumers are more likely to save their money
• Decreased income - Businesses have full in demand so want to lower costs to makeup for it - less money spent by workers
• Less money on luxury goods

Question 7

How does ‘unemployment’ indicate the state of an economy

Answer 7

• Business will have lose in revenue as people who are unemployed want to save their money
• Less money spent on luxury goods e.g cars, games consoles etc

Question 8

Interest rate

Answer 8

Is the cost of borrowing money or the rewards for saving money, expressed as a percentage

Question 9

Impact of rising interest rates (5)

Answer 9

• Generally result in a weakening of the economic climate for many businesses
• Businesses may suffer falling sales as consumers save more of their income
• Sales of goods purchased using borrowed money (such as houses) may fall significantly
• Businesses are likely to reduce production to match sales
• Businesses may postpone expansion plans, such as opening new shops

Question 10

Impact of falling interest rates (4)

Answer 10

• Usually results in improvements in the economic climate for businesses
• Sales may rise, especially luxury and non-essential products
• Production of goods and services will rise, possibly increasing consumers’ incomes
• Businesses may need to employ additional workers, also helping to increase consumer spending

Question 11

Impact of low interest rates for consumers

Answer 11

• less likely to save as they will get less money for doing so
• Spend more on goods and services