2.5.1 : Economic Influences Flashcards
What is PESTLE ?
Political
Economic
Social
Technological
Legal
Environment / Ethical
What is GDP ?
Measure of the value of the output in the economy - value used to assess angles in economic growth
What is demand ?
How much of a good or service a customer wants and is able to pay for
What are the stages of a business cycle ?
Boom - high levels of consumer spending , business confidence , profits and investment - price + costs tends to rise faster
Recession - falling levels of consumer spending ad confidence earn lower profits fora business - which start to cut back on investment - spare capacity increases + rising unemployment
Slump/Depression - very weak consumer spending and business investment ; many business failures ; rapidly rising unemployment ; prices might start falling
Recovery - things start to get better ; consumers tend to increase spending ; business tend to feel more confident and start to invest again ; it takes a while for employment to start growing again
What are the main causes of the business cycle ?
Change in the level of business and consumer confidence
Alternative periods of stocking and de-stocking
Changes in the value of consumer spending and business investment
Changes in government policy which can include a change to the economy
What are the real incomes and what impacts them ?
Real incomes measure the amount of disposable income available to consumers
What impacts them :
Employment levels
Interest rates
Tax policy
Wage growth
Price inflation
What is an interest rate ?
An interest rate is the reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed.
What happens when interest rates rise ?
Costs of serving loans/debts reduced - boosting spending power
Consumer confidence should increase leading to more spending
Effective disposable income rises - lower mortgage rates
Business investment should be boosted
Housing market effects - more demand and higher prices
Cheaper currency will increase exports
What is an exchange rate ?
It is the price of one currency expressed in terms of another currency - it determines how much of one currency has to be given up in order to buy a specific amount of one currency
What cause exchange rates to change ?
It is determined by the forces oof demand and supply in the currency markets. The price of a currency ll reflect the amount of the currency that consumers and businesses want to sell or buy.
What is a floating exchange rates to?
It means the currency of a country is market determined.
What are the factors that determine effect of changing exchange rates on a business ?
Low effect on a business
No export sales
All business activities located in the UK
Raw materials and other supplies bought in the UK
Higher costs can be passed on to customers to maintain margin
What is inflation ?
Is a sustained increase in the average price level of an economy.
How is inflation measured ?
It is measured by the annual percentage change in the level of prices measured by the consumer price index.
What are consumer price index’s ?
Retail price index - measurement of a ‘basket of goods’ and services representative of what people buy in the UK
Consumer price index - similar to RPI but mainly excluding housing costs
