Economic Influences

Question 1

Inflation

Answer 1

Is the general rise in prices

Question 2

Deflation

Answer 2

The general price level starts to decrease

Question 3

How does inflation affect a business

Answer 3

>increased costs
>uncertainty 
>international competitiveness
>borrowing and lending
>consumer reactions

Question 4

Exchange rates

Answer 4

The price of one currency in terms of another

Question 5

Appreciation of a currency

Answer 5

The rise in value of a currency

Question 6

Depreciation of a currency

Answer 6

A fall in the value of a currency

Question 7

SPICED

Answer 7

Strong 
Pound 
Imports 
Cheaper
Exports 
Dearer

Question 8

Interest rates

Answer 8

When a business takes a loan out they will need to pay back interest on that loan

Question 9

Effects of interest rates on costs

Answer 9

Likely to increase costs If interest is at a variable rate

Fixed rates mean they won’t have to change the interest rates and costs will stay the same

Question 10

Effect of interest rates of investment

Answer 10

> a fall in demand
cost of loans
attractiveness of saving
paying off existing loans

Question 11

Effect of interest rates on demand

Answer 11

> domestic consumers will stop buying on credit

>domestic investment will decrease

Question 12

Taxation

Answer 12

Governments can control money by raising or lowering taxes

Question 13

The effect on businesses of changes in taxation

Answer 13

> change in costs profit and revenues
consumer spending will change
prices of products will change
business spending and investment may change

Question 14

Gov expenditure

Answer 14

Spending in the public sector, such as education health and transport

Question 15

Business cycle

Answer 15

GDP is likely to grow however there will be fluctuations, these fluctuations are referred to the business cycle

Question 16

Boom

Answer 16

Here GDP is growing fast as the economy is performing well

Question 17

Downturn

Answer 17

The book is followed by downturn, GDP is still growing but at a much slower rate

Question 18

Recession or depression

Answer 18

At the bottom GDP may be flat. If GDP begins to fall to the bottom, it may be referred to a slump or depression. A less severe version is a recession

Question 19

Recovery or upswing

Answer 19

When GDP begins to rise there is an upswing/recovery

Question 20

The impact of the business cycle on a business

Answer 20

>employment
>output will change
>profit changes
>changes in start ups and closures 
>change in business confidence

Question 21

The effect of economic uncertainty on the business environment

Answer 21

> business confidence
unexpected events
decision making