Pestle analysis- Economic factors Flashcards
Interest Rates
Interest rates represent the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount.
Positive impact of Interest rates
Low interest rates would stimulate economic activity for a business this is because consumers are spending more as a result the business can use this to capitalise demand for their products by increasing the level of marketing for their products this will lead to an increase in sales therefore this will allow the business to increase their products.
Negative Impact of Interest rates
High interest rates this can impact their profit margins of the business this is because Consumers are reducing their spending habits as a result this may lead to fall in demand for their product therefore this may result in a fall in their sales revenue.
Evaluation of interest rates
It depends on the business this is because if a business product is price inelastic this may not lead to a huge impact on the demand of the products
Inflation
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
Effects of Inflation
Rising inflation can lead to increased costs, as a result this may lead to a fall in the business’s profits which may be passed on to consumers by increasing the prices of their products this may lead to a potential fall in demand this is because consumers will looking for affordable substitutes therefore this may impact their position in the market
Exchange rates
The price of one currency
expressed in terms of another. There is an
important link between the domestic rate of
interest and the value of a nation’s currency
Impacts of Exchange rates
s: SPICED (strong pound) and WPIDEC (weak pound) acronyms help understand how exchange rates affect import and export dynamics.
Price Elasticity: Businesses with price inelastic products can pass on increased costs from imports to consumers, affecting demand.
Market Uncertainty: Fluctuations in exchange rates create uncertainties for businesses, impacting competitiveness and profitability.
Unemployment
Definition: Unemployment refers to individuals who are actively seeking work but are unable to find employment.
Consequences for Businesses: High unemployment can lead to reduced demand for goods and services, lower productivity, and decreased profitability.
Social Costs: Unemployment can lead to lower living standards, increased social issues, and financial burdens on families.
De-Skilling: Prolonged unemployment can result in a loss of skills, diminishing human capital and reducing employability.
Youth Unemployment: Long-term youth unemployment is a significant issue in the UK, exacerbated by global competition and economic changes.
