Edexcel Economic Influences 2.5 Flashcards
Inflation
Percentage rise in average price level in economy
Consumer price Index
Typical price of a basket of goods and services
Inflation harmful to business
Uncertainty discourages spending and investment
Damage international competitiveness
Inflation as a benefit to business
Reduce value of loans and money owed
Business cycle
Shows regular changes that occur to GDP in an economy
GDP
Total value of all output produced in an economy during a time period
Economic growth
Annual % change in real GDP
What axis is GDP on?
The Y axis
What axis is time on?
The X axis
Four stages of business cycle
Boom
Slump
Recession
Recovery
Exchange rates
Price of one currency in terms of another
Products sold to Uk called
Imports
Products sold abroad called
Exports
Appreciation of Exchange rates
Harm exporters and help importers
Interest rates
cost of borrowing or return from saving money
Decrease in interest rates
Increase business profits.
Higher demand for borrowing.
Discourages saving.
Increase in interest rates
Decrease business profits.
Lower demand for borrowing.
Encourages saving.
Depreciation of exchange rates
Help exporters and harm importers
Increase in government spending
Boosts demand
Increases GDP
Reduces unemployment
Cuts to taxation
Increase disposable income
Boost business profit
What does the government need to do?
Maintain budget
Prevent threat of inflation
Uncertainty
Makes it difficult for business to plan ahead
Delay big spending and investment which is negative on economy
Main causes of inflation
Demand pull
Cost push
Why does cost push happen?
External shocks.
Depreciation of exchange rates.
Acceleration in wages.
Why does demand pull happen?
Depreciation of exchange rates.
Rising consumer confidence.
Faster rate of economic growth.
Boom
High levels of consumer spending.
Unemployment low.
Price and costs rise.
Slump
Weak consumer spending.
Rise of unemployment.
Prices fall.
Recession
Lower levels of consumer spending.
Lower profits.
Rise in unemployment.
Recovery
Consumers increase spending.
Investments made again.
Unemployment takes a while to stop growing.
Main changes in a business cycle
Changes in business and consumer confidence,
Alternating stocking and destocking.
Changes in value of investing.
Real income
Amount of disposable income available to a consumer.
Strengthen pound
Cheaper for UK to buy.
More expensive for country buying.
Weaken pound
More expensive for Uk to buy,
Cheaper for country buying.
