Economic Environment Flashcards
What is globalisation?
The process by which businesses or other organisations develop international influence or start operating on and international scale
Name pros of globalisation?
Wider investment choice - multinational funds and companies.
Companies can access low cost labour and materials which may not be available in the uk
Fund managers can use high yielding stocks as part of their portfolio diversification strategies.
Name cons of globalisation?
Low skilled, labour intensive in developed world are at a disadvantage against the developing world.
Political landscape of the country is likely to mirror its economic prospects so investors need to keep an eye on world events.
In a business cycle what are the four phases?
Recession
Recovery/Expansion
Boom
Slowdown/Contraction
How do you measure where a country is in its business cycle?
It’s Gross Domestic Product (GDP)
What does GDP measure?
The country’s economic output.
It adds together the total value of all the goods and services produced each year. It is measured on a quarterly basis.
What does a rise in GDP indicate?
Growth
What does a fall in GDP indicate?
Contraction
When there is a fall in GDP over 2 consecutive quarters what does this indicate?
Recession
If GDP is higher than the previous quarter what does this indicate?
the economy is expanding
Equity growth is at is quickest in what phase of the business cycle?
Recovery
What happens to GDP during Boom phase?
Strong demand means rising prices for many products. The economy is growing at its fastest.
Inflation rises and rises the economy starts to overheat and interest rates rise to dampen demand and stop expansion.
What happens to GDP is the contraction phase?
High interest rates slow down spending but inflation can remain high.
Consumers delay major purchases - causes probs for companies and unemployment rises.
