2.5 - External Influences Flashcards
What are economic influences
They deal with changes in the economy as a whole and how they affect different businesses
What is the business cycle (4 steps)
The sequence of slump, recovery, boom and recession. It is measured by changes in GDP
GDP:
Gross domestic product- the value of all the goods and services produced in a country per year
Boom -
High levels of customer spending, profits and investments , prices and costs tend to rise faster, unemployment is low
Recession -
Falling levels of customer spending, lower profits for businesses, spare capacity increases and rising unemployment
Slump/Depression -
Very week customer spending and business investment, many business failures, prices fall and unemployment rapidly rises.
Recovery -
Things start to get better, consumers begin to increase spending, businesses start to invest, and unemployment slowly falls.
What is real income
The income of individuals after adjusting for inflation
Interest rate :
The reward for saving and the cost of borrowing expressed as a percentage of the money borrowed or saved.
The level of interest is important because :
Affects customer demand , affects total operating costs, the higher the rate of interest the less attractive it is for a firm to invest money into the future of a business
What is an exchange rate?
The price of one currency expressed in terms of another currency.
Appritiation is where
The value of the pound rises compared to other currencies (£1 can get more $)
What is depreciation
The value of the pound falls compared to other currencies ( £1 can get less $)
SPICED
Stronger Pound Imports Cheaper Exports Dearer
What is Inflation
It measures the percentage annual rise in the average price level
What is the Consumer price index
It’s the main measure of inflation in the U.K.
Two main causes of inflation
Demand pull - Where there is excess (too much) demand
Cost push - when costs rise
Fiscal policy
Involves the use of government spending, taxation and borrowing to affect the level of growth of aggregate demand, outputs and jobs.
What does government tax do
Raises revenue to finance government spending and helps the government meet economic objectives.
Direct tax
Based on income, wealth and profit. (Income tax, national insurance, corporation tax)
Indirect tax
Based on spending by customers on goods and services ( VAT, TV licence, betting tax, car tax)
What is a law/legislation
A set of rules and regulations which a business has to comply
What are the 5 main areas in which the law affects a business
Employment Customer Health and safety Environment Competitive
What is employment protection
Employment sets out, and aims to protect, the rights of employees at work. E.g. Pay (must be over the minimum wage), discriminating against employees ( race, gender)
