Economic Variables Flashcards
What is demand pull inflation?
- High inflation can be caused by too much demand
2. Happens when there is an increase in disposable income so people buy more and companies can’t produce quick enough
What can demand pull inflation cause?
Can make profit margins go up
What is cost plus inflation
Rises in inflation can be due to rising costs putting up prices
What does cost plus inflation cause
Profit margins go down if businesses decide not to put their prices up
How does inflation in the UK effect Smith and Haddon
When inflation in the UK is high, it makes UK exports abroad expensive making the businesses less competitive
When inflation in the UK is low, UK businesses have the competitive advantage
Negative impacts of inflation rising in the UK on Smith and Haddon
Smith and Haddon produce premier goods and are most likely to be affected by the inflation
Customers have less to spend and therefore have to result to looking for cheaper alternatives
Why may periods of high inflation help Smith And Haddon
They can be good times for the business to expand - if interest rates are lower then the rate of inflation it’s cheap for them to borrow money to invest in new premises or machinery
In the case of SHL they could invest into Mardidi whilst the inflation is high
What is deflation
It’s when there’s not enough demand so companies lower their prices
Issues with deflation
- Fall in productivity
- Resulting in less workers needed
- Results in unemployment
- Making demand drop further along with prices as a result
What effect do high exchange rates have on Smith and Haddon
UK exports (smith and Haddon) are relatively expensive abroad meaning that they are likely to sell much less
But it means that imports from their suppliers will be much cheaper cutting costs for them
What is inflation
Increase in the price of goods and services
What effect does lower exchange rates have on smith and Haddon
UK exports are relatively cheap for foreign people meaning that smith and Haddon are likely to get a lot more revenue from their exporting!
But importing their goods from the Far East becomes expensive and as a result may have to think about putting a mark up onto their products to cover added costs
What is structual unemployment
Due to change in the structure of the economy e.g a decline in a major industry such as coal mining. When structural unemployment is concentrated in a particular region of the region it’s called regional unemployment
What is frictional unemployment
Temporary, caused by losing one job and getting another
What is cyclical unemployment
Unemployment is due to the downturn in the business cycle e.g. A lack of demand for labour because production had decreased and businesses are trying to cut costs
