304 - PEST - Economic Flashcards
Economic factors
Economic growth, the business cycle, GDP, inflation, interest rates, the exchange rate, unemployment
Economic growth
The increase in the production of economic goods and services, incomes and spending levels in the economy, if this increases then the economy has grown
GDP
Gross Domestic Product, all of the spending/output/income in the UK is calculated and measured to see if it has increased or decreased in the last quarter, if the economy is growing then it can be said the standard of living is increasing
The business cycle
Shows the cycle of booms and slumps
Recession
Defined as two consecutive periods of negative economic growth
Boom
High levels of consumer spending, business confidence, profits and investment, new jobs are created
Recession
Falling levels of consumer spending and confidence mean lower profits for businesses which start to cut back on investment, unemployment levels rise
Slump/depression
A prolonged period of declining GDP, weak consumer spending and business investment, many business failures, rapidly rising unemployment ,prices may fall
Recovery
things start getting better, consumers begin to increase spending, business starts to invest again, but it takes time for unemployment to stop growing
Inflation
A general increase in prices over a period of time, this is measured each month
CPI
Consumer Prices Index
Causes of inflation
1) Demand, if there is too much demand in the economy then this can cause prices to rise
2) Costs, if businesses costs rise then this will mean businesses will have to raise prices
Interest rates
The price of money, it is the return on saving and the cost of borrowing
If interest rates rise…
Loans become more expensive, mortgage payments increase, saving rather than spending
If interest rates fall…
Loans become cheaper, mortgage payments decrease, spending rather than saving
How rising interest rates affect a business
Fewer loans, fewer spending, lower demand, make some mortgage payments increase, less disposable income, loans will become more expensive
Exchange rates
The price of one currency against another, when a business in one country buys goods from a business in another country it will have to exchange currency in order to pay the foreign business.
Rising exchange rates mean…
UK businesses have to pay more for imported goods, a higher exchange rate will make it cheaper for businesses and consumers to buy UK products
Falling exchange rates
Exports become relatively cheaper for the foreign firm to purchase, but imports will be more expensive as the UK will have to exchange more pounds in order to buy the same amount of foreign currency.
How the exchange rate is determined
Supply and demand, the more pounds people and businesses want to buy, the higher the price will be, when the exchange rate changes, it can change the relative price of imports and exports
SPICED
Strong Pound Imports Cheaper Exports Dearer
WPIDEC
Weak Pound Imports Dearer Exports Cheaper
Unemployment
When workers who want to work are unable to find jobs, can occur because: the nature of the industry has changed, there is a recession/lack of demand in the economy, workers have finished one job and are waiting for another to start
