2.5 External Influences

Question 1

What are the economics external influences on businesses?

Answer 1

Changes in inflation, changes in interest rates, changes in exchange rates

Question 2

What is inflation?

Answer 2

The general rise in prices in an economy over time

Question 3

How is inflation measured?

Answer 3

Inflation is measured using the CPI. The central price index measures monthly changes in the prices of a range of products.

Question 4

What does higher inflation lead to for businesses?

Answer 4

Increased costs, Consumer changing spending habits, Higher repayments on loans, International competitiveness reduces, Uncertainty

Question 5

What is the ideal inflation rate for businesses?

Answer 5

2% is the ideal inflation rate in the uk

Question 6

What do an increase in exchange rates for a business mean?

Answer 6

Export sales fall, exports have higher prices, import costs fall, businesses importing g will expand pool of overseas suppliers

Question 7

What does a decrease in exchange rates mean for a business?

Answer 7

Export sales will rise, exports selling prices will increase, importing costs rise, businesses importing will seek domestic suppliers

Question 8

What is an exchange rate?

Answer 8

An exchange rate is the value of one currency expressed in terms of another

Question 9

What are interest rates?

Answer 9

Interest rates are the cost of borrowing and the reward for saving.

Question 10

What do increased interest rates mean for a business?

Answer 10

Businesses will have to pay more money to borrow, Businesses will be less likely to invest in capital, demand for products overseas will fall, customers will reduce spending