2.5 external influences Flashcards
what does GDP stand for?
gross domestic product
what is GDP?
a measure of a country’s total output of goods and services over a period of time
how are GDP changes over time represented?
the business cycle
what are the different descriptors for levels of gdp?
peak = high level of GDP
trough = low level of GDP
expansion = increase in GDP
contraction = decrease in GDP
stages in the business cycle:
-boom
-recession
-slump
-recovery
what is a boom?
high rates of economic growth and production
features of a boom:
-high profits
-low unemployment
-high inflation
-shortages in supply
-high confidence
the impact of low unemployment in a boom:
-disposable income increases → higher sales revenue
-recruitment and staff retention may become more challenging, businesses may need to pay higher wages
the impact of high confidence in a boom:
-businesses look to expand and maximise profit
-production levels are likely to be increased
the impact of high inflation in a boom:
interest rates rise
what is a recession?
output starts to fall & growth declines
features of a recession:
-production declines as demand falls
-governments use policies to stimulate growth
-consumer/business confidence starts to fall
-high unemployment
the impact of high unemployment in a recession:
-customers have less disposable income and are likely to reduce spending
-businesses may find it relatively easy to recruit workers due to a larger pool of candidates
the impact of low confidence in a recession:
-businesses may delay spending decisions and focus on reducing risk
-production levels are likely to be reduced
-businesses will stockpile products
what is a slump?
a prolonged period of economic decline
features of a slump:
-high levels of unemployment
-high rates of business failure/closure
-low interest rates
-low levels of spending and investment
impacts of high rates of business failure during a slump:
-businesses adopt a strategy of rationalisation
-redundancies, scale down of production and reduction in capacity.
-businesses reduce prices and focus on their most profitable product lines
what is recovery?
economy starts to pick up after a period of decline
what is exchange rate?
the price of one currency expressed in terms of another
why are exchange rates important for businesses?
-important for businesses that import raw materials and components
-important for businesses that export their products
(a UK business will purchase a foreign currency in order to buy products and services from overseas)
why do exchange rates fluctuate?
-changing demand for a currency
-economic growth
-changes to interest rates
what happens if the pound increases in value against other currencies?
it strengthens
(one pound can buy MORE of the currency)
what happens if the pound decreases in value against other currencies?
it weakens
(one pound can buy less of the currency)
what is the impact on exporting businesses when the currency appreciates?
-sales are likely to fall as products become more expensive when compared to overseas competitors
-in order to remain competitive exporting businesses may need to lower prices and accept lower profit margins