304 PEST factors (ecomomic) Flashcards
identify economic factors
- economic growth
- the business cycle
- GDP
- inflation
- interest rates
- exchange rates
what is economic growth
- is the increase in the production of goods, services and incomes- if this increases then the economy has grown - standard of living rises
what does the business cycle show
- shows the increase and decrease in economic growth (GDP) overtime - the cycle of booms and slumps that economic growth goes through over periods of time
what is a recession
-period of declining economic activity
-high unemployment rates as business lays of workers
-decreased customer spending due to lower confidence
-low interest rates and low inflation
what is a slump
- the lowest point on a business (economic cycle)
- economic activity stagnates, with GDP at its lowest,
- high levels of unemployment
- levels of business investment
- low levels of customer spending and confidence
- low interest rats
what is growth recovery
- economy begins to improve with GDP rising
- business starts hiring again
- customer confidence and spending increases
- inflation starts to rise as do interest rates
what is a boom
- a period of rapid economic growth
- the value of all goods and services is at its highest
- high employment- increased investment and spending
- risks of inflation due to higher demand, high interest rates (highly expensive)
what is inflarion
- on average the price of good and services are increasing
- measured by consumer pice index (CPI) -> tracks changes in price of a ‘basket of goods and services’. purchased by the average household eg. food, entertainment, bills - each item weighted according to how much the average household spends on it
what causes inflation to rise
- demand-> if there’s too much demand (spending) in the economy- cause prices to rise, especially if the business cannot immediately increase the supply of goods and services to meet this demand
- costs -> if business costs rise then this will mean the businesses have to increase their prices to account for higher prices eg. raw material, wages
what can inflation show
- it shows that the economy is growing as there is more demand, higher incomes and more being spent
-however if inflation is greater than 2% then costs are increasing too quickly as this is hard for businesses
what are interest rates
- the price of money -> it is the return on saving and the cost of borrowing
what happens if interest rates rise
- loans become more expensive
- some montage repayments increase
- saving rather than spending becomes attractive
-> all this reduces customer spending and therefore demand for goods and services
(if interest rates fall - opposite occurs)
how do interest rates affect a business
when interest rate rise- borrowing more expensive saving more worthwhile
- so fewer loan are taken out - so lower spending and lower demand for business selling luxury gods
- mortgage payments increase- households have less disposable income- only buy necessities
- loans expensive- harder to buy assets/machines-> high costs for business/ reduced cash flow
- THEREFORE- negative affect on business- less demand for goods and services
what are exchange rates
- the price if one currency against another
how to exchange rates influence business decisions making
- determine were they buy supply
- determine pricing statergies
- where they sell the product
- determine where they headquarter
- determine weather they sell their product domestically or export abroad
what happens when exchange rates rise
- when exchange rates increases in the uk (pound gets stronger in relation to other currencies) - Uk busisnes pay less for imported goods- foreign goods become cheaper-> uk exports more expensive in other counties- reducing demand for Uk products abroad
- when exchange rates fall (weaker pound) - Uk business pay more for exported goods, increasing costs-> Uk exports become cheaper for foreign buyers, increasing demand for Uk goods and services
if exchange rates increase (SPIECED)
S- strong
p- pound
I- imports
C cheaper
E- exports
D- dearer
what does SPICED show
- if the exchange rate increases, the vale of the pound (£) becomes stronger compared to other currencies
- benefits business that reply on importing goods because its cheaper a supplying is cheaper
- exports - uk goods/services become more expensive for people in other counties to buy- less sales - reduce demand for UK exports
if exchange rates decrease (WPIDEC)
W- weak
P- pound
I- imports
D- dearer
E- exports
C- cheaper
what does WPIDEC show
- if exchange rates decrease, the value of the pound (£) weaknes compared to other currencies
- Uk business and consumers pay more for goods and services bought from abroad - increased costs
-But UK goods and services sew more adorable to people in other counties- boosting demand for UK exports - helping businesses that sell internationally
what is unemployment
defined as those ages 16 or over who are without work, available to start work in the next 2 weeks and have either:
(a) been actively seeking work in the last 4 weeks
(b) are waiting to start a new job they have already been obtained
unemployment in relation to the business cycle
- unemployment increases- economy in recession/ slump
- businesses less confident in long term growth- so redundancies
- less people with income- demand for goods and services decreases - prioritise necessities/ inferior goods
(opposite if unemployment is low)
