2.5.1 Economic Infleunces

Question 1

What is meant by inflation

Answer 1

Inflation is an increase in the general price level

Question 2

Identify 3 impacts of inflation on a business

Answer 2

Inflation impacts on a business because: it increases costs of raw materials, it means wages increase, the price business can charge to their customers may increase

Question 3

What is meant by an exchange rate

Answer 3

An exchange rate is the price of one currency in terms of another currency

Question 4

What is meant by an appreciation and a depreciation is a currency

Answer 4

An appreciation is what the price of a currency rises in value against another currency

Question 5

What is the impact on a business who predominantly imports, of a depreciation in the domestic currency?

Answer 5

Imports will become more expensive, and therefore costs of the products will rise

Question 6

What is the impact on a business who predominantly export, or a depreciation in the domestic currency ?

Answer 6

The export price in a foreign currency will decrease leading to the business selling more exports

Question 7

What does the acronym SPICED stand for

Answer 7

Strong pound imports cheap exports dear

Question 8

What is meant by an interest rate

Answer 8

An interest rate is the cost of borrowing or the reward of saving

Question 9

Identify 4 impacts in businesses of an increase in the interest rate

Answer 9

Business will have higher debt repayments which will increased fixed costs, slow down consumer spending because consumers repayment costs on loans will increase so they have less disposable income, incentivise them to save, more likely to raise finance through equity rather than debt

Question 10

Approximately how much of total spending in the uk economy is by the government

Answer 10

Around 40-50% of all spending in the UK economy is by the government

Question 11

State two examples of private businesses who are largely reliant on the government to buy their goods or services

Answer 11

BAE who make defence items like tanks and G4S who provide services in prisons

Question 12

Identify three reasons why government would increase spending in an economy

Answer 12

In an economy to try and stimulate the economy out of a recession. They might invest in order to have a long term benefit from the economy

Question 13

Identify three reasons why government would cut spending in an economy

Answer 13

If they have a large budget deficit - they might have been spending more than they are receiving in tax, if economy is overheating and inflation may be an issue, as they want to reduce taxation and reduce the role of the state in the economy

Question 14

What is meant by the business cycle

Answer 14

The business cycle is when an economy goes from a boom to a recession over time

Question 15

What happens to consumer incomes in a boom

Answer 15

Consumer incomes tend to rise during a boom

Question 16

What happens to consumer incomes in a recession

Answer 16

Consumer incomes tend to fall during a recession

Question 17

What happens to unemployment in a recession

Answer 17

Unemployment generally increases in a recession

Question 18

What is meant by income elasticity if demand

Answer 18

YED measures the responsiveness of demand to a change in income

Question 19

Identify two businesses who might have w positive income elasticity if demand, where demand may go up in a boom and down in a recession

Answer 19

Iceland and the pound shop might have a negative income elasticity if demand, where demand goes down in a boom and up in a recession

Question 20

What is happening to prices when the rate if inflation falls from 2% to 1%

Answer 20

Prices are rising by 1% in a year rather than 2%

Question 21

Why can many businesses maintain profitability during tine if inflation, when their costs are rising

Answer 21

They can often maintain their profitability when inflation’s increase costs of product increases and the so does the price that the business can charge it its customers