2.5.1 Economic influences Flashcards
What are the main economic influences?
6
- Business cycle
- Inflation
- Interest rates
- Exchange rates
- Tax and gov spending
- Unemployment
How may inflation negatively impact a business?
2
- Costs^, may not be able to pass onto consumers (PED)
- ^Price = ^wage demand, to maintain living standards
What is not happening if inflation falls from 2% to 1%?
1
- Prices aren’t going down, but rising more slowly (not deflation)
How may a business protect their profit margins in a time of inflation?
1
- ^Selling prices depending on PED
How may inflation positively impact businesses?
1
- Industry wide price rise = ^revenue, ^gross profit
What is the acronym for the effect of a stronger pound?
6
- Strong
- Pound
- Imports
- Cheap
- Exports
- Dear
Who do lenders adjust their rates of interest in line with?
1
- Bank of England
What are the effects of an increase in interest rates for a business?
3
- Consumers = >money to spend as payments on mortgages^, >purchasing power
- ^Costs on borrowing
- Less likely to invest, keep money in bank (opp cost)
What % does gov spending account for in UK (NHS, education)?
1
- 40%
How may increased government spending impact businesses?
1
- ^Tax (income/corporation), >profits
How may increased government spending impact consumers?
1
- ^Income tax, >disposable income, >spending power
What is meant by a boom in terms of an individual company and a country?
2
- Company = rapid/sig sales growth
- Country = sig GDP growth
What is a boom’s effect on employment and why?
1
- ^Employment, keep up w demand
What is a recessions effect on a business?
2
- Poor capacity utilisation, demand falls
- ^Unemployment, firm cuts back and >stock
How does economic uncertainty affect business decision making?
1
- > Spending
