2.5 External influences Flashcards
What is inflation
the general rise in prices in an economy over time
What is the CPI
The consumer price index measures monthly changes in prices in a range of goods and services
What is the goal for inflation
2%
What are problems caused by inflation
Increased costs - workers demand higher wages. suppliers increase prices
higher repayments on loans
consumers change spending habits- may reduce spending and demand
international competitiveness - higher domestic inflation rates means UK businesses are less likely to be competitive
What is an exchange rate
The value of one currency expressed in terms of another
What affects will an appreciation of the pound have on exporting businesses
Sales are likely to fall as products become more expensive compared to overseas competitors
businesses would need to lower prices to stay competitive
SPICED
What affects would an appreciation of the pound have on importing businesses
costs are likely to fall as supplies from overseas become cheaper them domestic produced
businesses may increase the amount of overseas suppliers to reduce costs
SPICED
What affects will an depreciation of the pound have on exporting businesses
sales will be likely to rise as products will become cheaper when compared to overseas competitors
may increase selling prices
WPIDEC
What affects will an depreciation of the pound have on importing businesses
costs will likely rise as supplies from overseas becomes more expensive
businesses may seek domestic suppliers
WPIDEC
What is an interest rate
a percentage reward offered for saving money
a percentage charged for borrowing money
If interest rates are high…
Businesses will have higher repayments on any loans they have increasing their costs
this means businesses may be less willing to make capital investments when interest rates are high
consumers are also more likely to save as they have a higher incentive to
What are direct taxes
levied on income e.g income tax
What are indirect taxes
levied on spending e.g. VAT
what will an increase in taxation lead to for businesses
revenue may fall for businesses
increased income tax will reduce the amount t of disposable income consumers have
operating costs will rise
What does the business cycle show
The up and downs in the levels of a country’s economic activity over time
When does a recession occur
When an economy experiences two consecutive quarters or more of negative economic growth
When does a boom occur
When an economy experiences high rates of economic growth
What are characteristics of a recession
increasing / high unemployment
low CC
low business confidence
low inflation or deflation
increase in gov spending
What are the impacts of a recession on businesses
consumers have less disposable income and will likely reduce spending. -> lower revenues
businesses may be able to easier recruit from a larger pool of candidates
production is likely to be reduced
What are characteristics of a boom
decreasing unemployment and increasing job vacancies
high confidence and more risky decision takes
increasing rate of inflation
improvement in gov budget as tax rev rises and gov spending falls
What are the impacts of a boom on businesses
consumers have more disposable income and will likely reduce spending. -> higher revenues
businesses might have to pay higher wages
businesses will look to expand
production is likely to increase
product and market development strategies
interest rates will likely rise
What can economic uncertainty cause
Businesses will find planning difficult and reluctant to make big decisions.
How may economic uncertainty occur?
fluctuating exchange rate
fluctuations in the price of key commodities e.g. oil
