external factors - economic

Question 1

what are the economic factors that impact businesses?

Answer 1

• economic growth
• unemployment rate
• interest rates
• inflation
• exchange rates

Question 2

what happens when economic growth is increasing (boom)?

Answer 2

• more jobs will be created (resulting in higher levels of employment)
• more tax will be paid
• people have more disposable income to spend on goods and services

Question 3

what happens when economic growth is decreasing (recession)?

Answer 3

• higher levels of unemployment
• people will have less money to spend on goods and services

Question 4

what happens if the unemployment rate is high?

Answer 4

• firms have more potential workers to choose from
• more competition for jobs means that it is easier for a business to keep wages down

Question 5

what happens if unemployment rate is low?

Answer 5

businesses will have to offer higher competitive wages to secure new employees

Question 6

what happens when interest rates are high?

Answer 6

• businesses borrow and invest less
• businesses recieve more interest on money saved in the bank
• consumers save more money and spend less on goods and services

Question 7

what happes when interest rates are low?

Answer 7

• businesses may borrow and invest more
• businesses will recieve less interest on money in the bank
• consumers are less likely to save and be more willing to spend money on goods and services

Question 8

what happens when inflation is high?

Answer 8

• prices rise
• customers may stop buying luxury goods and focus on the essentials

Question 9

what happens when the exchange rate for the pound falls?

Answer 9

• the pound becomes weak, a weak pound makes goods cheaper to sell abroad
• if UK firms need to buy in raw materials from abroad then the weak pound buys less, this makes the cost of production higher
• this extra cost may be passed onto the customers, resulting in higher prices