economic influences Flashcards
what is inflation?
when the general price rises
how does inflation affect businesses?
costs
- supplier prices will rise
- menu costs rise as websites, or menus have to be updated
- management have to spend more time dealing with employee complaints and pay claims- there will also be more strikes
how does inflation affect businesses?
uncertainty
the business will be unsure of what costs are rising or falling, and they will be uncertain of what to invest in due to a risk of interest rates rising or prices rising in the future
how does inflation affect businesses?
borrowing and lending
interest rates rise to match inflation
how does inflation affect businesses?
consumer reactions
with inflation rising, consumers are more likely to save more, meaning they are spending less as consumer confidence decreases
how does inflation affect businesses?
international competitiveness
higher inflation rates in one country puts them at a disadvantage as consumers in that country are more likely to shop abroad, where goods are cheaper
what is deflation, and how does deflation affect a business?
deflation is when the general price level starts to fall
consumers may delay spending as they think they can make purchases in the future with low prices, meaning the business have to cut staff due to less production etc
the impact of an appreciation in the exchange rate on imports and exports
imports: become cheaper, demand rises
exports: demand decreases as they are dearer
the impact of a deprecuation in the exchange rate on imports and exports
imports: demand falls as they become dearer
expoerts: demand rises as they become cheaper
how do interest rates affect a business?
costs
if interest rates rise, overhead costs also rise
how do interest rates affect a business?
investment
a change in interest rates impact the amount of investment would be willing to make, e.g on buildings etc, this is because of:
- cost of loans rise
- attractiveness of saving rises
- businesses would rather pay off existing loans than start new investments
- fall in demand due to there being less spending in the economy
how do interest rates affect a business?
demand
- if there is a rise in interest rates, consumers will be put off borrowing money for long term purchases like cars, furniture etc
- less demand for investments from businesses
what are direct taxes?
taxes on income (income tax)
what are indirect taxes?
taxes on spending (VAT)
the effect on businesses of changes in taxation
consumer spending
reduction in income taxes etc lead to more consumer confidence and spending
increases in income taxes lead to less consumer condifence and less spending
the effect on businesses of changes in taxation
prices
increase in VAT will raise the costs of the business, which is often passed onto cutomers by raising the prices of goods
the effect on businesses of changes in taxation
business costs, revenue and profits
increase in VAT = increase in costs = increase in price = reduction in sales = revenue falls
what are custom duties?
paid when buying goods abroad
the effect of changes in government expenditure on businesses
if the government increases spending to more than it raises in taxes, total spending in the economy will rise
the business cycle
boom: GDP is growing fast and the economy is performing well
downturn: a boom is followed by a downturn, where the economy is still growing but at a slower rate
recession/depression: GDP falls, demand falls, the economy is doing badly
recovery/upswing: GDP starts to rise and the economy recovers from a recession, confidence increases
affect of a boom on a business
output
output rises to meet rising demand
affect of a boom on a business
profit
during a bom, demand rises, meaning profit is also likely to rise
affect of a boom on a business
business confidence and investment
business confidence is high, meaning they are willing to take more risks and make more investments
affect of a boom on a business
employment
employment rises as businesses are taking on more workers to cope with demand
