External factors and business activity

Question 1

How can inflation impact on business activity?

Answer 1

If inflation increases, there is less disposable income and people prioritise buying essentials and general sales decline. If inflation decreases, people begin to buy luxuries as they have more disposable income.

Question 2

How can interest rates impact on business activity?

Answer 2

Low interest rates means more disposable income and people spend more, high interest rates means people have greater debt.

Question 3

How can real incomes impact on business activity?

Answer 3

Real incomes means people have more or less disposable income and therefore spending habits change on essentials or non-essentails.

Question 4

How can employment rates impact on business activity?

Answer 4

High unemployment benefits ‘bargain’ business whereas when more people are employed there are greater sales for luxury goods.

Question 5

How can GDP impact on business activity?

Answer 5

A lower GDP means less output and employment so spending on non-essentials decreases. A higher GDP means more output and spending on luxuries.

Question 6

How can consumer confidence impact on business activity?

Answer 6

High confidence- more spending
Low confidence- more saving

Question 7

What is PESTLE

Answer 7

Political - Government
Economic- Interest rates
Social- Consumer taste/trends
Technological- Technology
Legal- Laws
Ethical- Sustainability