STEEPLE - Economic

Question 1

How does the government facilitate economic growth?

Answer 1

• Lower interest rates - reduce cost of borrowing and increase consumer spending and investment
• Increased real wages – if nominal wages grow above inflation.

Question 2

Define Inflation

Answer 2

a general increase in prices

Question 3

If inflation has dropped from 4% to 2.5%. What does this mean?

Answer 3

prices will be rising at a slower rate.

Question 4

Measuring the inflation rate.

Answer 4

• Measured by the annual % change in consumer prices

Question 5

How does Low inflation encourage multinational investment?

Answer 5

Business invest in order to become productive and remain competitive and prosper without having to steadily raise prices.

Question 6

Business impacts of high inflation.

Answer 6

• Business uncertainty: High inflation is not good for business confidence partly because they cannot be sure of what their costs and prices are likely to be. Lead to a lower level of capital investment spending.
• Business competitiveness: If one country has a much higher rate of inflation than others, this will make its exports less price competitive in world markets. Lead to reduced export orders, lower profits, fewer jobs and the countries worsening balance of payments.

Question 7

Define Exports.

Answer 7

Send (goods or services) to another country for sale.

Question 8

Define Imports

Answer 8

• Bring (goods or services) into a country from abroad for sale.

Question 9

What happens the UK businesses if the ££ increases in value?

Answer 9

• Imports are cheaper so buying resources becomes cheaper

- Exports become less competitive aboard.

Question 10

Factors that affect exchange rates.

Answer 10

• Inflation - Countries with a high inflation will see a DEPPRECIATION in the value of its currency, countries with a low inflation will see an APPRECIATION in the value of its currency.
• Interest Rates - Higher interest rates causes a countries currency to APPRECIATE because there are more ‘hot money flows’ into the countries banks.

Question 11

Define Interest Rates.

Answer 11

Are the cost of borrowing and the reward for saving expressed as a %.

Question 12

How will a rise in interest rates affect home owners?

Answer 12

• Those who are paying off their mortgage on a variable rate will have to pay off more, however most are on fixed mortgages.

Question 13

How will a decrease in interest rates affect a businesses method of production?

Answer 13

• Lower interest rates encourages business investment, this investment could be to increase production from Batch production to Mass Production.