Economic influences Flashcards
What are the four main economic influences?
1) inflation
2) interest rates
3) exchange rates
4) tax and government spending
What are the consequences of inflation?
- money looses value= less disposable income
- assets may appreciate in value
- revenues may increase if PED inelastic
- increase cost of raw materials
- employees may need higher wages
- suppliers increase prices
What are the consequences of increase intrate rates?
-cost of borrowing increases= higher mortgages= repayment more expensive
- savings will have a higher reward
-more expensive to take out loads
-existing debts cost more to repay
What are the consequences of a stronger pound?
Cheaper to import but exports will be seen as more expensive to oversea customers
What are the consequences of income tax?
If it decreases= increase disposable income= higher purchasing power= increase sale of luxury goods
What should a business do if it’s an importer when the pound appreciates or depreciates?
Stronger £= makes sense to stoke pile as cheaper imports
Weaker £= imports more expensive so increase production costs so business could bring in domestic suppliers instead of suppliers abroad
If a business exports more and the pound depreciates what happens?
Causes demand to increase which increases revenue if elastic PED
What is inflation?
Increase of prices within an economy
What is exchange rates?
Value of one currency expressed in terms of another
What is interest rate?
cost of borrowing money
What are the consequences of decrease interest rates?
-more loans taken out because cheaper to repay
-existing debts will cost less which increases income so increases spending
-those with savings are making less reward on the saving
What is taxation?
Charges made by government on activists and income of people and businesses
What is the effects on business of changes in tax?
Increases tax:
- consumers have less disposable income
- increased costs for business
-price of product increases
