Macro economic factors

Question 1

What are the two main consequences of interest rates on consumer behaviour?

Answer 1

They may encourage people to save or spend a higher proportion of their income and encourage people to borrow or cut down on their borrowing.

Question 2

How do high interest rates affect consumer spending?

Answer 2

More people are likely to save and less will borrow, leading to reduced disposable income for consumer goods.

Question 3

What impact do high interest rates have on the purchase of luxury items?

Answer 3

Higher interest rates make luxury items more expensive to finance, deterring expenditures on them.

Question 4

What is the effect of high interest rates on credit availability?

Answer 4

Higher interest rates generally mean tighter credit, making it more difficult for consumers to obtain financing.

Question 5

What are the potential consequences of a fall in demand due to high interest rates?

Answer 5

Reduction in capacity utilisation, higher average costs, and a fall in profit levels.

Question 6

How do high interest rates impact business investment?

Answer 6

High interest rates discourage investment as the cost of borrowing is high, making many projects unviable.

Question 7

What happens to the demand for capital goods when investment falls due to high interest rates?

Answer 7

The demand for capital goods falls.

Question 8

What effect do high interest rates have on the value of the pound?

Answer 8

High interest rates make the pound stronger.

Question 9

How do stronger pounds affect imports and exports?

Answer 9

They benefit businesses that rely on imports but make exports less competitive.

Question 10

What effect do low interest rates have on consumer behavior?

Answer 10

They may encourage people to spend their income and/or borrow at low rates, stimulating demand.

Question 11

What impact do low interest rates have on business investment?

Answer 11

Businesses may borrow more money to invest in growth and production, stimulating the economy.

Question 12

What is the role of taxation in the economy?

Answer 12

Taxation generates income for the government, impacting both the private and public sector.

Question 13

What are the two forms of taxes mentioned?

Answer 13

Direct taxes and indirect taxes.

Question 14

What is an example of a direct tax?

Answer 14

Corporation tax.

Question 15

What is an example of an indirect tax?

Answer 15

Fuel duty or VAT.

Question 16

How do taxes impact businesses?

Answer 16

They increase business costs and reduce income available for shareholders or reinvestment.

Question 17

What inflationary pressure can result from VAT?

Answer 17

Less spending power for customers.

Question 18

What benefit do some industries, like farming, receive from the government?

Answer 18

Subsidies that help reduce business costs.

Question 19

Some would argue that taxation is the most important economic factor. True or False?

Answer 19

True.

Question 20

What is an exchange rate?

Answer 20

The value of one currency expressed in terms of another currency.

Question 21

What happens when the value of the pound falls?

Answer 21

Exports become cheaper in terms of the purchasing businesses’ own currency.

Question 22

How might manufacturers react to a fall in the value of the pound?

Answer 22

• Increase the price in £s to maximize profits
• Keep prices the same to attract new customers and increase sales

Question 23

What impact does a rise in the value of the pound have on exports?

Answer 23

Exports become more expensive in terms of the purchasing businesses’ own currency.

Question 24

What challenges do businesses face when the value of the pound rises?

Answer 24

Winning and keeping export markets becomes more difficult due to price competitiveness.

Question 25

How can a business react to a rise in the value of the pound?

Answer 25

* Reduce the price in £s, reducing profits * Keep prices the same and lose out on profits to maintain competitiveness

Question 26

What factors influence how a manufacturing business acts in response to currency changes?

Answer 26

* Strength of their brand * Quality of their goods or services * Competitors' pricing

Question 28

What is the relationship between economic factors?

Answer 28

They impact on each other

Question 29

Why is it important to have the correct balance in terms of the rate of interest?

Answer 29

It will impact on inflation, business capital investment, and exchange rates

Question 30

What can the rate of interest influence?

Answer 30

Inflation, business capital investment, exchange rates

Question 31

How do inflation, business capital investment, and exchange rates affect the economy?

Answer 31

They may impact on the levels of employment and the business cycle

Question 32

What is tax?

Answer 32

A compulsory contribution to state revenue, levied by the government

Question 33

On what is tax levied?

Answer 33

Workers' income and business profits, or added to the cost of some goods, services, and transactions

Question 34

True or False: Tax is optional for workers and businesses.

Answer 34

False

Question 35

Fill in the blank: Tax is a compulsory contribution to state revenue, levied by the government on _______.

Answer 35

workers' income and business profits

Question 37

How does inflation impact consumer spending?

Answer 37

Higher inflation rates erode purchasing power, making it less likely that consumers have excess income to spend after covering basic expenses such as food and housing.

Question 38

What negative effect does higher inflation have on the production of goods?

Answer 38

It negatively impacts production, which can lead to implications for employment levels and further erode purchasing power.

Question 39

What additional costs do businesses face during inflation?

Answer 39

Businesses may have to negotiate pay increases and change marketing materials, which incurs additional costs.

Question 40

How can inflation be viewed in terms of economic factors?

Answer 40

One could argue that inflation is the most important economic factor.

Question 41

What advantage might producers of low value goods see during inflation?

Answer 41

Customers may switch from branded goods to low value or non-branded goods.

Question 42

What issue does deflation create for consumer purchasing behavior?

Answer 42

Customers tend to wait before purchasing, expecting prices to fall further, which creates a fall in demand.

Question 43

How does high inflation relative to other countries affect businesses?

Answer 43

It makes businesses less competitive in export markets and vulnerable to competition from imports.

Question 44

How do falling exchange rates affect importers?

Answer 44

Falling exchange rates make importers happy because the price of goods falls, reducing their costs.

Question 45

What is the impact of rising exchange rates on exporting firms?

Answer 45

Rising exchange rates make exporting firms less competitive because the price they charge may increase.

Question 46

What is one main factor influencing demand for consumer goods?

Answer 46

The level of employment.

Question 47

How does employment influence GDP?

Answer 47

The more people receiving a steady income, the more purchases are made, helping businesses increase capacity and thus raising GDP.

Question 48

What effect does high unemployment have on interest rates?

Answer 48

High unemployment is likely to lead to low interest rates, which encourages spending.

Question 49

Why is employment considered vital to an economy?

Answer 49

It ensures economic growth.

Question 50

What does the business cycle illustrate?

Answer 50

Changes in economic output (GDP).

Question 51

What characterizes a boom period in the business cycle?

Answer 51

Producers operating at full capacity, low unemployment, and plenty of demand.

Question 52

What inflationary pressures might arise during a boom?

Answer 52

Workers may demand higher wages, causing prices to rise.

Question 53

What challenges do businesses face during a downturn?

Answer 53

They need to seek ways to reduce costs and may face rising interest rates.

Question 54

What happens during a recession?

Answer 54

Rapidly increasing unemployment, falling demand, and financial investment by businesses decline.

Question 55

What changes might businesses make during a recession?

Answer 55

They may need to change product lines to meet the needs of customers with less disposable income.

Question 56

What happens after a recession during the recovery phase?

Answer 56

Investment rises as businesses take advantage of opportunities.

Question 57

Fill in the blank: The business cycle is illustrated by _______.

Answer 57

changes in economic output (GDP).