2.5 Economic Influences Flashcards
What is inflation?
Rise in the general price level from one year to the next
What are the consequences of changes in inflation rates?
- cost of products and services rise
- cost of supplies and raw materials rise
- profit margins squeezed
- business owners may need to raise prices
What is the impact of inflation on labour wages?
Inflation rising decreased labour wages
Increases labour demand and lowers unemployment
What is an exchange rate?
The value of one currency in terms of another
How do interest and exchange rates link?
Interest falling means less saving and investment in the uk which means less demand for pound and value falls
What is the impact of interest rates on businesses?
Interest rising = increasing cost of borrowing = cost of supplies may increase
What is the impact of taxation and govt spending?
Extra govt spending or lower taxes lead to more demand in the economy - leads to higher output and employment
What is an economic influence?
When a business is impacted by economic factors in any way
What are real income?
- Measure the amount of disposable income available to consumers
What factors affect real incomes?
- Inflation
- wage growth
- employment levels
- interest rates
- tax policy
What affects demand?
- Employment / job security
- interest rates
- household wealth
- disposable income
What is the impact of falling interest rates?
- Cost of borrowing falls
- consumer confidence increases
- lower mortgage costs
- business investment increases
- housing market (more demand and higher property prices)
- exchange rates (less investment in pound - weak pound)
What does PESTLE stand for?
- Political environment
- economic
- social
- technology
- legal
- ethical and environment
What is legislation?
Set of laws suggested by government and made official by parliament
What is the consumer protection law?
Products have to be:
- satisfactory quality
- fit for purpose
- as described
