economic influences

Question 1

what is inflation?

Answer 1

when the general price rises

Question 2

how does inflation affect businesses?

costs

Answer 2

• 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

Question 3

how does inflation affect businesses?

uncertainty

Answer 3

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

Question 4

how does inflation affect businesses?

borrowing and lending

Answer 4

interest rates rise to match inflation

Question 5

how does inflation affect businesses?

consumer reactions

Answer 5

with inflation rising, consumers are more likely to save more, meaning they are spending less as consumer confidence decreases

Question 6

how does inflation affect businesses?

international competitiveness

Answer 6

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

Question 7

what is deflation, and how does deflation affect a business?

Answer 7

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

Question 8

the impact of an appreciation in the exchange rate on imports and exports

Answer 8

imports: become cheaper, demand rises
exports: demand decreases as they are dearer

Question 9

the impact of a deprecuation in the exchange rate on imports and exports

Answer 9

imports: demand falls as they become dearer
expoerts: demand rises as they become cheaper

Question 10

how do interest rates affect a business?

costs

Answer 10

if interest rates rise, overhead costs also rise

Question 11

how do interest rates affect a business?

investment

Answer 11

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

Question 12

how do interest rates affect a business?

demand

Answer 12

• 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

Question 13

what are direct taxes?

Answer 13

taxes on income (income tax)

Question 14

what are indirect taxes?

Answer 14

taxes on spending (VAT)

Question 15

the effect on businesses of changes in taxation

consumer spending

Answer 15

reduction in income taxes etc lead to more consumer confidence and spending

increases in income taxes lead to less consumer condifence and less spending

Question 16

the effect on businesses of changes in taxation

prices

Answer 16

increase in VAT will raise the costs of the business, which is often passed onto cutomers by raising the prices of goods

Question 17

the effect on businesses of changes in taxation

business costs, revenue and profits

Answer 17

increase in VAT = increase in costs = increase in price = reduction in sales = revenue falls

Question 18

what are custom duties?

Answer 18

paid when buying goods abroad

Question 19

the effect of changes in government expenditure on businesses

Answer 19

if the government increases spending to more than it raises in taxes, total spending in the economy will rise

Question 20

the business cycle

Answer 20

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

Question 21

affect of a boom on a business

output

Answer 21

output rises to meet rising demand

Question 22

affect of a boom on a business

profit

Answer 22

during a bom, demand rises, meaning profit is also likely to rise

Question 23

affect of a boom on a business

business confidence and investment

Answer 23

business confidence is high, meaning they are willing to take more risks and make more investments

Question 24

affect of a boom on a business

employment

Answer 24

employment rises as businesses are taking on more workers to cope with demand

Question 25

affect of a boom on a business

business start ups

Answer 25

during a boom, more people are prepared to set up new businesses, as demand is rising, making it easier to make profit

Question 26

affect of a recession to a business

output

Answer 26

output will fall as businesses have to respond to decreases in demand and cut capacity and output

Question 27

affect of a recession to a business

profit

Answer 27

when national incomes decline, it is harder to make a profit as businesses cut their costs to maintain profit levels

Question 28

affect of a recession to a business

business condfidence and investment

Answer 28

business owners are less willing to take risks and make investments as business confidence is low during a recession

Question 29

affect of a recession to a business

employment

Answer 29

during a recession, businesses lay off workers due to them not being needed, meaning unemployment rises

Question 30

affect of a recession to a business

business closures

Answer 30

business closures rise, and not many start up businesses open up

Question 31

the effect of economic uncertainty on the business environment

decision making

Answer 31

long term decisions become more risky and businesses get scared to make long term investments due to uncertainty of the future