Economic Influences

Question 1

What is economic influences

Answer 1

• Economic influence is when a business is affected in any way by economic factors e.g. inflation, exchange rates etc.

Question 2

What is inflations

Answer 2

• The annual rate of inflation shows how much higher or lower prices are compared with the same month a year earlier. It indicates changes to our cost of living

Question 3

What is CPI

Answer 3

• CPI looks at the prices of hundreds of things we commonly spend money on, including bread, cinema tickets and pints of beer - and tracks how these prices have changed over time.

Question 4

How are businesses affected by changes in inflation

Answer 4

• As inflation rises so does the cost of products and services
• Cost of supplies, ingredients and raw materials will go up
• As costs go up due to inflation, business owners may need to increase their prices to maintain profitability

Question 5

What are exchange rates

Answer 5

• The exchange rate is the price of one currency in exchange for another
• You may have “changed” your money up for a holiday abroad, and you will have been charged commission to do so

Question 6

Exchange rates-appreciation

Answer 6

• Appreciation means that there is a rise in the £pound against other currencies means the £pound can buy MORE foreign currency

Question 7

Exchange rates- depreciation

Answer 7

• A fall in £pound is called depreciation
• UK decision to leave the EU meant that the £pound fell sharply against other currencies

Question 8

What are interest rates

Answer 8

• Interest rates means the cost of borrowing money
• The Bank of England is now responsible for deciding what the interest rate should be in the UK
• If the bank of England pushes up interest rates consumer and business spending will fall

Question 9

Interest rates- cost of borrowing

Answer 9

• If interest rates on a loan are low then consumers may borrow money to buy; a car, sofa, holiday etc. This will stimulate demand for these products and services

Question 10

How are businesses affected by changes in interest rates

Answer 10

• If interest rates rise then the cost of borrowing will rise and this will mean that the cost of supplies for a business may increase

Question 11

What is taxation

Answer 11

• The UK government requires its citizens and businesses to pay a variety of taxes
• These taxes are used to pay for; education in state schools, the armed forces, the 999 emergency services, the NHS and local councils to name a few

Question 12

How is business affected by changes in taxation

Answer 12

• Lower taxes can result in more demand in the economy and lead to higher output and employment
• If taxes are high then UK businesses will have higher costs

Question 13

Taxation and VAT

Answer 13

• If the % of VAT goes up a business could pass this cost on to the consumer so if makes goods more expensive to buy, or absorb the cost which will have an impact on their profit margin

Question 14

What is government spending

Answer 14

• Taxes that the government collects goes into a central pot – this is then spent on various things for the benefit of the UK society
• The person who makes the decisions about tax and how t spend it is the Chancellor of the Exchequer also known as the treasurer

Question 15

How are businesses affected by changes in government spending

Answer 15

• If the government decides to cut government spending to reduce the deficit (amount it owes) this can have an impact on businesses which supply goods or services to public organisations e.g. the NHS

Question 16

The business cycle

Answer 16

• As time has passed over the last 150 years economists have noticed that demand and output in the UK changes, it goes up and down in a cycle pattern

Question 17

What is the boom

Answer 17

• In boom times a country may enjoy a period of high consumer spending
• As consumers are spending there is an increased demand for goods and services

Question 18

What is Recession

Answer 18

• This means that consumers will demand less goods and services as they seek to save their money rather than spend – they worry about borrowing in case the interest rates go up

Question 19

What is a slump

Answer 19

• A slump is the bottom of the business cycle where consumer confidence and spending is at its lowest

Question 20

What is recovery

Answer 20

• In the recovery phase of the cycle, demand levels for goods and services start to improve
• Unemployment will start to fall as businesses start to take on workers to meet new improving levels of demand

Question 21

What is economic uncertainty

Answer 21

• A series of financial shocks since the recession in the UK in 2008 has meant that there has been macroeconomic uncertainly
• This means that with a risk of unemployment that consumers are delaying the purchase of goods