External Influences Flashcards
what is an interest rate?
the cost of borrowing money and the reward of saving measured as a percentage
who sets interest rates/
the monetary policy committee at the Bank of England
when interest rates are reduced, what are people more likely to do and why?
to spend as it becomes cheaper to buy on credit and loan
when interest rates, increase people are more likely to do what?
save
what is the current interest rate?
0.5%
a change in interest rates can affect a business, what does this effect depend on?
the amount the business has borrowed and on what terms, e.g. how long
whether the business operates in a market which is dependent on consumer spending
how can interest rates affect consumer demand?
consumers may chose to spend or save more
demand for necessities will be the same but for luxury goods, it may change.
if interest rates increase, why will this increase the demand for sterling and hence reduce the supply?
because people from other countries will want to put their money in our banks and so there will be a inflow of capital and so a increase in demand
why effect does an increase in demand for the sterling have on exchange rates?
it causes them to go up
a stronger currency will cause exports to be more what and imports to be more what?
exports will be more expensive and imports will be cheaper
SPICED
strong pound imports cheaper exports dear
how will high interest rates effect inflation?
people will have less disposable income so will not be spending and so inflation will fall because growth of the economy will fall.
how will high interest rates affect unemployment?
people will be saving and so wont be spending and businesses will suffer and they may not be able to afford certain things e.g. staff and so some will have to be made redundant and so unemployment rises.
what 3 things can a business do if interest rates rise?
price discount
cost cutting exercises
reduce capacity
what is an exchange rate?
the value of one currency in terms of another
if demand for the pound increase…?
more uk products demanded
tourism increased
interest rates increased
if the value of the pound looks like it will increase
when do we want to sell our pounds?
when buying from other countries
when exchanging for holiday currency
to save in overseas bank accounts
when overseas investors think the pound will fall
why do exchange rates matter?
imports and exports
tourism
affects firms profits
unemployment
how does exchange rates affects firms profits?
import more
spend more
smaller profit margin
a fall in exchange rates is good for who and why and bad for who and why?
good for businesses who export because countries will see our products for cheaper and so more goods sold.
bad for businesses who import because they will have to pay more for the same amount of products
high exports but low imports benefit from ……… of the pound?
depreciation
high exports but low imports suffer from ……… of the pound and why?
appreciation because less people will buy from you because its more expensive
exporters prefer a what kind of pound and why?
weaker because more will buy
importers prefer a what kind of pound and why?
stronger because imports become cheaper
what are 3 advantages to the UK being in the EU?
export and import goods with no tariffs, quotas or other restrictions
creates opportunities in new markets
increased sales so economies of scale
what are 2 disadvantages to the UK being in the EU?
new competition
opens market to influx of cheaper foreign substitutes
why is the fact that members of the EU can move freely to other countries within the EU a good thing for businesses?
employees can move freely across to other countries for work and leisure
what are 2 advantages of movement of labour being so free in the EU?
can attract skilled workers e.g. doctors
can benefit from employing EU migrant workers in terms of costs and conditions
what are 2 disadvantages of movement of labour being so free in the EU?
migration of skilled workers out of the UK
hostility towards foreign workers
why are 3 reasons why relocation opportunities is good for businesses?
cheaper land to build on
relocate closer to new markets
affordable ready supply of labour
what are 3 reasons why increased competition is good for businesses and customers?
increased need for efficiency
improved productivity
improved brand awareness
what are 3 disadvantages to businesses and the UK being part of the EU?
less incentives to trade with non-EU countries e.g. Australia
time and cost of meeting EU laws
conflict between interests of EU members
what are 3 advantages for Eurozone businesses?
fast and easy transactions with suppliers and customers in foreign countries
no complicated exchange rate calculations
easy to manage accounts/finance
what are 3 disadvantages for Eurozone businesses?
loss of independence
interests rates set by European central bank not own country
loss of authority for country
what are 3 problems for UK business for not being part of the Eurozone?
Eurozone have preference to trade with other Eurozone countries
have to pay commissions on exchanges
creates a barrier to trade
what is one advantage for UK businesses for not being part of the Eurozone?
interest rates are set by the monetary policy committee, not the Euro committee.
what is globalisation?
the process that enables product, financial and investment markets to operate across the globe.
what are 3 important aspects of globalisation?
increased movement of labour
increased movement of financial capital
increased trade in goods and services
describe increased trade goods and services?
barriers to trade are coming down and so countries import and export physical goods from each other in vast quantities.
describe movement of labour
over 2 million Britain’s live abroad, mass migrations present opportunities to host countries but are not without issues e.g. housing issues.
describe movements of financial capital
vast quantities of investments, equities, currencies and other financial assets are traded quickly and electronically around the world.
what are 3 positive influences of globalisation?
increased competition
economies of scale
optimization of location
what are 5 negative influences of globalisation?
competition relocation exploitation of LEDC'S pollution greed,poverty and war
what are 3 ways in which globalisation benefit the uk?
reduce costs due to cheaper suppliers and access to cheap labour
increased growth and so increased profits
competitive drive to improve standards
what are 3 advantages of globalisation in LEDC’S?
bring in employment opportunities
bring investment to the economy
increase technology
what are 2 disadvantages of globalisation in LEDC’s?
exploit natural resources/labour
money goes out of the country
what are 2 advantages of globalisation for the uk government?
easier to trade
more revenue from exporting
what are 2 disadvantages of globalisation for the uk government?
brain drain
population increase
what are 2 advantages of globalisation for uk businesses?
wider range of customers
cheaper labour/suppliers
what are 2 disadvantages of globalisation for uk business es?
more competition
employees sending money back home
what is inflation?
a rise in the price of goods and services over a period of time in the economy.
what is the basket of goods?
a “basket” of around 600 people’s goods and services that they buy on average which is used to track inflation
what are the 2 causes of inflation
demand pull
cost push
what is cost push?
the cost of resources increase and so this price is pushed onto customers
what is demand pull?
demand for resources increases, this causes economic growth, this means shortages due to high demand
what is the 2 other ways in which cost push can create inflation?
wage price spiral
expectations
what is wage price spiral?
prices increase, so employees ask for higher wages, but then those prices of goods will have to increase
what are expectations?
if you expect inflation to fall, it will
what is the impact on businesses of inflation?
usually passed onto customers i.e. higher prices
or some bigger businesses absorb it
what are 4 impacts of high inflation?
businesses increase prices
increase in demand
time lapse
workers need more money
if inflation is caused by high demand, then how can it be tackled?
raise interest rates to reduce disposable income
what is GDP?
gross domestic product- the value of goods and services produced by an economy over a specific period.
what are 4 factors which affect the business cycle?
investment in business to create more goods and services
interest rates
consumer expectations
external shocks
what are the 4 main points on the business cycle?
boom
recession
slump
recovery
what are 3 effects of economical activity on the business cycle?
rising unemployment
falling demand
falling profits
what is tax?
expenses you pay to the government
what are the 2 types of tax?
direct and indirect
what is indirect tax?
taxes paid on the goods and services you buy
what is direct tax?
taxes put on people’s income and directly on the profit’s made by a business
what are 3 effects of changes in taxation on businesses
consumer spending
prices
business spending and investment
Which of the 4 mains sections on the business cycle is at the bottom?
slump
What dies PESTLE stand for?
Political Economic Social Technological Legal Ethical/Environmental
what is PESTLE?
a model to analyse the external factors which a business may have to respond to or make decisions to.
Political
A change in government policies or agenda, a change in political parties and what they stand form migration, EU
Economic
Inflation, interest rates, business cycle, taxes and subsidies, exchange rate, unemployment
Social
Country culture, religion, aging population, families, fashions/trends, birth rate/death rate, immegration
Technological
New technology, internet, CAD/CAM, contactless card, online shopping, apps, product development.
Legal
Legislation, new laws or change in laws, minimum wage, discrimination, health and safety, EU laws
Environmental/ethical
CSR, recycling and waste management, pressure groups, child labour, fair trade.
What are 4 advantages of PESTLE?
Simple easy to use framework
Reduce the impact of potential threats
Aims and encourages strategic thinking
Exploit new opportunites
What are 4 disadvantages of PESTLE?
Oversimplifies the information 'Paralysis by analysis' Takes time-restricts who can use it External information restricted Assumptions only
What is a pressure group?
An organisation set up to try to influence what we thinking about the business and it’s environment. It can challenge and even change the behaviour of a business
What are 3 campaign tactics used by pressure groups?
Press
Petitions
Marches
What 3 things do the success of pressure groups depend on?
The affluent the group is (£)
Power of the role model
impact of the media
