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year 13 business > PESTEL factors > Flashcards

PESTEL factors Flashcards

1
Q

Economic

What is meant by changes in the economic environment

A

Economic change refers to the fluctuations in national and international macroeconomic variables, such as economic growth (GDP), unemployment, inflation and exchange rates

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2
Q

Economic

All economic variables can ….

A

Have a significant impact on businesses strategic and functional decisions. This impact can include opportunities and threats

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3
Q

Economic

The 5 economic factors

A
  • Economic growth
  • Unemployment
  • Inflation
  • Exchange rates
  • Government economic policy
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4
Q

Economic

What is economic growth

A

The total value of all goods and services an economy (country) can produce

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5
Q

Economic

What is GDP

A

The total output of an economy over a period of time

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6
Q

Economy

Define The economic cycle

A

A phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern. Rises and falls may over time follow a regular pattern

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7
Q

Economy- The economic cycle

What are the 4 stages to the cycle

A
  • Recession
  • Recovery
  • Boom
  • Slowdown
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8
Q

Economy-key terms

Define The recovery

A

When ecominc growth becomes positive after a recession

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9
Q

Economy- key terms

Define The boom

A

When the rate of economic growth exceeds the potential growth of GDP (the output gap is narrowed)

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10
Q

Economy- key terms

Define The slowdown

A

When economic growth begins to fall and approach 0

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11
Q

Economy- key terms

Define The recession

A

When the rate of economic growth becomes negative and real GDP actually falls (real GDP falls in 2 consecutive quarters)

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12
Q

Economy

Define the output gap

A

The difference between actual and potential (trend) GDP growth

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13
Q

Economy- output gap

What is a positive output gap

A

If actual exceeds potential growth

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14
Q

Economy- output gap

4 facts about output gap

A
  • If actual exceeds potential growth- a positive output gap
  • If actual output is below potential output then the country has capacity- a negative output gap
  • Indicates little of no capacity
  • Likely to generate inflationary pressures
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15
Q

Economy- output gap

When is there a negative output gap

A

-If actual output is below potential output then the country has capacity- a negative output gap

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16
Q

Economy- Fiscal policy

Define the fiscal policy

A

The use of taxation and public spending to achieve macro economic targets

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17
Q

Economy- Fiscal policy

4 facts about the fiscal policy

A
  • Usually in each year the government spends more than its tax income
  • This is referred to as a budget or fiscal deficit
  • the government has to borrow to pay for this deficit
  • Each year this additional borrowing is added to the national debt
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18
Q

Economy

What are the 4 types of taces in the UK

A
  • Income tax
  • National insurance
  • VAT
  • Excise duties
  • Corportaion tax
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19
Q

Economic

What is a freely floating exchange system

  • how does the value of the currency find its way around
  • what will the value of the currency be determined by
A
  • The value of a currency is allowed to find its own way to equilibrium without any Government intervention
  • The value of the currency will be determined by market forces of demand and supply
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20
Q

What determines an exchange rate in a ‘freely floating’ exchange rate system?

A

Supply and demand

21
Q

A strong pound is is …

A

Good for importers, bad for exporters

22
Q

A weaker pound is …

A

Good for exporters, bad for importers

23
Q

2 advantages of inflation for a business

A

1) Real assets become worth more

2) The real value of money owed is eroded

24
Q

advantages of inflation for a business

1) Real assets become worth more (3)

A
  • e.g. the value of property and stock that a firm owns will increase
  • this will improve a firms balance sheet
  • as a result firms may find it easier to raise finance from banks and shareholders
25
Q

advantages of inflation for a business

2) The real value of money owed is eroded (2)

A
  • Firms with large borrowings benefit as fixed terms repayments become more easily covered by inflationary rises in income and profit
  • This can mean that periods of high inflation could be a good time for a business to expand
26
Q

Inflation- 2 other impacts for a business

A
  • Businesses may increase prices to pass costs onto consumers or may decide to absorb cost rises
  • May decide to reduce internal costs to protect profits
27
Q

4 Disadvantages of inflation for a business

  • it is harder for a business to plan …
  • companies producing premium goods…
  • inflation can damage …
  • damage to …
A

1) It is harder for a business to plan when inflation is high- they need stable prices to make accurate sales forecasts
2) Companies producing premium goods may experience lower sales as consumers switch to cheaper alternatives
3) Inflation can damage profitability- especially for firms with fixed price contracts that take a long time to complete e.g. house building
4) Damage to industrial relations

28
Q

2 Benefits of low stable inflation

A
  • Business feels more confident- planning/ long term strategic decisions easier to make
  • May look to invest and grow
29
Q

What is deflation

A

A fall in the average price level measured by the CPI

30
Q

What will happen in a period of deflation

A

-In a period of deflation low demand (consumers will put off purchases) may lead to redundancies and rationalism

31
Q

Define unemployment

A

The number of people able, available and willing to find work and actively seeking work- but not employed

32
Q

What is the unemployment rate

Define and formula

A

The % of the labour force who are out of work

The unemployed
__________________
X100
Labour force

33
Q

What are the 4 main types of unemployment

A
  • Seasonal
  • Structural
  • Frictional
  • Cyclical
34
Q

What is seasonal unemployment

A

Regular seasonal changes in employment/ labour demand

35
Q

What is structural unemployment

A

Arises from the mismatch of skills and job opportunities as the pattern of labour demand in the economy changes

36
Q

What is frictional unemployment

A

Transitional unemployment due to people moving between jobs

37
Q

What is cyclical unemployment

A

Caused by a fall in aggregate demand leading to a decline in GDP and employment

38
Q

Business implications of rising/ high unemployment (4 problems)

  • spending
  • staff insecurity
  • skills
  • social problems
A
  • Lower consumer spending = lower demand for income elastic
  • Unemployment creates insecurity in the workforce; potentially a cause of lower morale and de-motivation
  • Danger of lost skills for industries as a whole
  • Business may be impacted by social problems associated with high unemployment
39
Q

Business implications of rising/ high unemployment (4 advantages)

  • demand
  • supply of labour
  • recruitment
  • staff turnover
A
  • Demand for inferior goods (lower price, quality) may increase
  • Greater supply of labour- potentially lower wage/ salary levels
  • Recruitment becomes easier- there should be more applicants for each vacancy
  • Lower staff turnover- employees less likely to be able to find other jobs, or want to move in an uncertain economic climate
40
Q

What does monetary policy involve

A

Altering the base (policy) interest rate or the supply of money in the economy

41
Q

Monetary policy

What do many economists consider

A

They consider that the manipulation of exchange rates is a form of monetary policy, given that exchange rates are affected by changes in interest rates

42
Q

Monetary policy

Since 2009 what has been used

A

Quantitative easing has been used to increase the money supply

43
Q

What does Monetary policy aim to influence

A

The growth of output (GDP), and jobs (unemployment)

44
Q

The base rate of interest is set by …

A

The Bank of England’s monetary policy committee (MPC)

45
Q

Why is the bank of england independent (3)

A
  • it increases the credibility of policies
  • firms and consumers will have more confidence in the Governments actions
  • therefore more likely to invest
46
Q

How many members does the MPC consist of

A

9 members- 5 from the Bank of England and 4 external members appointed by the Chancellor

-it is chaired by the Governor of the bank of england

47
Q

What are interest rates

A

The reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed

48
Q

What are the 5 different types of interest rates operating within the external environment

A

-Interest rates on savings in bank and other accounts
-borrowing interest rates
-mortgage interest rates
-credit card interest rates and pay day loans
-

year 13 business (3 decks)

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