Economic Influences Flashcards
Inflation
Is the general rise in prices
Deflation
The general price level starts to decrease
How does inflation affect a business
>increased costs >uncertainty >international competitiveness >borrowing and lending >consumer reactions
Exchange rates
The price of one currency in terms of another
Appreciation of a currency
The rise in value of a currency
Depreciation of a currency
A fall in the value of a currency
SPICED
Strong Pound Imports Cheaper Exports Dearer
Interest rates
When a business takes a loan out they will need to pay back interest on that loan
Effects of interest rates on costs
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
Effect of interest rates of investment
> a fall in demand
cost of loans
attractiveness of saving
paying off existing loans
Effect of interest rates on demand
> domestic consumers will stop buying on credit
>domestic investment will decrease
Taxation
Governments can control money by raising or lowering taxes
The effect on businesses of changes in taxation
> change in costs profit and revenues
consumer spending will change
prices of products will change
business spending and investment may change
Gov expenditure
Spending in the public sector, such as education health and transport
Business cycle
GDP is likely to grow however there will be fluctuations, these fluctuations are referred to the business cycle
Boom
Here GDP is growing fast as the economy is performing well
Downturn
The book is followed by downturn, GDP is still growing but at a much slower rate
Recession or depression
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
Recovery or upswing
When GDP begins to rise there is an upswing/recovery
The impact of the business cycle on a business
>employment >output will change >profit changes >changes in start ups and closures >change in business confidence
The effect of economic uncertainty on the business environment
> business confidence
unexpected events
decision making
