external influences Flashcards
what do interest rates tell us
tell us the cost of borrowing and the return of savings
what does a fall in interest rates mean and what does a rise in interest rates mean
fall-means costs of borrowing is decreased
rise-means costs of borrowing is increased
what is the interest rate on savings
amount of money paid into savings account by the bank based on how much customer has saved in account
what does the Bank of England base rate do
influence other banks interest rates
although banks can set the interest rates higher or lower then base rate
how does interest rates affect consumer spending
higher interest rates means people have less money to spend
have to pay more interest back on things like mortgages meaning they have less disposable income
may decide to save more as have less money, demand for items fall
what do low interest mates mean
interest rates fall so dont have to pay as much interest on things like mortgages so have more disposable income/willing to purchase things, meaning demand rises
what types of products are more sensitve to changes in interest rates
products which are often borrwed e,g cars
inflation definition
overall increase in the price of goods and services within an economy
what are the two types of inflation
demand pull inflation-where there is too much demand
people have too much disposable income and gods cant be made quick enough to reach demand, so they increase their prices
cost push inflation-when rising costs push up prices. employee wages rises can make prices rise especially if productivity isn’t rising
what is the rate of inflation calculation
percentage change in prices of goods and services in one year compared to previous year
what happens to exports when inflation in uk is high
means exports become more expensive abroad
Uk businesses become less competitive
what happens to exports when inflation in Uk is low
Uk businesses have a competitive advantage
what is a consumer price index
measures inflation within a country
uses index numbers to track changes in average cost of basket of goods that an average houshold would regulary buy
graph going up-shows inflation
line going down-shows deflation
what is the calcualtion for index number
average value of the basket divided by base value of the basket x 100
what type of business is most likely to be affected by inflation and what can they do about these issues
businesses selling premium goods
as if inflation rises, people have less disposable income
therefore, will want to save not spend
therefore demand for high priced products will fall
they can react to this issue by reducing their prices
however, not too far that they lose their premium image
or advertise heavily
