304 Economic Factors

Question 1

what is GDP?

Answer 1

total value of all goods/services produced in a country over specific period (usually a year).

Question 2

why does economic cycle matter for business?

Answer 2

influences decisions about hiring, investment and pricing.

Question 3

why does economic cycle matter for consumers?

Answer 3

affects jobs, wages and how much people spend.

Question 4

why does economic cycle affect the government?

Answer 4

shapes policies like taxation nd public spending.

Question 5

what are 4 key economic performance indicators?

Answer 5

inflation, interest rates, unemployment rate(%), demand.

Question 6

what is inflation?

Answer 6

sustained rise in economy’s general price level. prices of goods/services increases over time.

Question 7

what is the consumer price index?

Answer 7

tracks changes in price of ‘basket of goods’ purchased by average household. eg clothing, food, transport.
each item weighted according to amount spend on them.

Question 8

what is the target for inflation each year?

Answer 8

2%

Question 9

what is cost push inflation?

Answer 9

occurs when overall prices increase (inflation) due to increases in cost of wages/raw materials. forces businesses to increase prices.

Question 10

what is demand pull inflation?

Answer 10

occurs when level of supplu is insufficient to meet increased levels of demand. increase price to maximise profits.

Question 11

how could a business respond to cost push inflation and what does this depend on?

Answer 11

change supplier, make redunancies, offshore, outsource.
depends on:
quality of supply, capacity utilisation, logistic factors, quality control.

Question 12

how could a business respond to demand pull inflation and what does this depend on?

Answer 12

increase or decrease price.
depends on:
price elasticity of demand
shareholder demands.

Question 13

what happens in recessions?

Answer 13

declining economic activity.
GDP falling
high unemployment
businesses making redundancies
decreasing investment, customer spending, interest rates and inflation.

Question 14

what happens in a slump?

Answer 14

lowest point of economic cycle.
GDP at lowest
economic activity stagnates
unemployment
low investment, spending, inflation and interest rates.

Question 15

what happens in growth (recovery)

Answer 15

economy begins to improve
GDP increases
business hires again
consumer confidence increases
more spending
increasing inflation and interest rates.

Question 16

what happens in boom?

Answer 16

period of rapid economic growth
GDP peaks
value of goods/services at highest
high employment
investment, spending, interest rates and inflation all increase.

Question 17

why is inflation low in recessions/slumps?

Answer 17

lower levels of demand

Question 18

why is inflation higher in recovery/booms?

Answer 18

increased levels of demand allow prices to increase.

Question 19

why is demand higher in recovery/booms?

Answer 19

higher levels of employment lead to disposable incomes and increased customer confidence?

Question 20

which businesses may be winners in recessions/slumps?

Answer 20

inferior brands such as aldi

Question 21

which brands may be winners in booms/recovery?

Answer 21

luxury brands such as waitrose.

Question 22

what is the exchange rate?

Answer 22

value of one currency expressed in terms of another currency

Question 23

what can exchange rates determine?

Answer 23

where business buys supply
where business produces
where businesses headquarter
who they hire
pricing strategy
where product is sold

Question 24

what is the acronym for strength of pound regarding imports/exports?

Answer 24

Strong
Pound
Imports
Cheaper
Exports
Dearer

and vice versa!

Question 25

3 strengths of a strong pound?

Answer 25

benefit business relying on importing, costs less than other countries’ currencies.
benefit businesses which offshore/outsource operations as wages are cheaper.
provides new market development opportunities as its cheaper to establish business.

Question 26

what do the benefits of a strong pound depend on?

Answer 26

type of business
business relying on exporting products may see less sales as it’s more expensive for other countries.

Question 27

what is unemployment?

Answer 27

those aged 16+ who are without work, available to start work in next 2 weeks either actively seeking to work in past 4 weeks or waiting to start new job.

Question 28

what do high unemployment rates do to wages?

Answer 28

makes them lower because people are easily replaceable

Question 29

what is economic growth?

Answer 29

increase in production of economic goods/services, incomes and spending levels in economy.

Question 30

how can a rising business rate affect a business?

Answer 30

fewer loans so lower spending and lower demand for businesses.
mortgage payments increase so less disposable income.
people see benefits of saving.
business loans more expensive to borrow money for new machinery.

Question 31

how is exchange rate determined?

Answer 31

supply and demand

Question 32

3 reasons for unemployment?

Answer 32

nature of industry has changed and workers don’t have other skills.
recession
worker is in between jobs