T41

Question 1

What is PESTLE and what is it used for?

Answer 1

You can use PESTLE analysis to determine business growth or decline based on 6 factors
(Politician, Economic, Social, Technology,Legal and Environment)

Question 2

What factors of politics can affect business growth/ decline?

Answer 2

• competition policy
• industry regulation
• government spending and tax policies
• business policies and incentives

Question 3

What economic factors affect business growth/decline?

Answer 3

• interest rates
• consumer spending and income
• exchange rates
• business cycle (GDP)
• inflation

Question 4

What social factors affect business growth/decline?

Answer 4

• demographic change
• impact of pressure groups
• consumer taste and fashion
• changing lifestyles

Question 5

What technology factors affect business growth/ decline

Answer 5

• disruptive technologies
• adoption of mobile tech
• health and safety laws
• environmental legislation

Question 6

What environmental factors affect business growth/ decline?

Answer 6

• sustainability
• tax practices
• ethical sources (supply chain)
• pollution & carbon emissions

Question 7

What is a boom and how does it affect businesses? (Business cycle)

Answer 7

• wages are increased and prices of goods and services are also increased
• Unemployment is low
  Increased confidence = higher profits and investments
• increased wages people have more disposable income to spend on products and services (higher consumer spending)

Question 8

How do you come out of a boom?

Answer 8

Interest rates will increase to stop people from taking out credit and loans which lowers consumer spending on products and services

Question 9

What happens in a recession and how does it affect businesses?

Answer 9

In a recession there is high unemployment because businesses cant afford to supply jobs and wages with low profits.

Question 10

What is inflation?

Answer 10

Inflation is a sustained increase in the average price level of an economy. This is when the government will measure a typical ‘basket’ of everyday goods to calculate the increase/decrease in price

Question 11

Why is inflation bad for the economy and businesses?

Answer 11

• it brings uncertainty for the future
• businesses will cut back on investments meaning less jobs, profits and tax for governemnt

Question 12

What are the two ways businesses can deal with inflation (rising costs)?

Answer 12

1. They will absorb the costs and generate less profit
2. Charge higher prices to cover the increased costs of the products

Question 13

What is consumer price index and how does the government take it into consideration?

Answer 13

• CPI is the main measure of inflation in the uk
• UK government has set the Bank of England a target inflation to 2%
• there aim is to achieve a sustained and stable inflation
• low inflation is also known as price stability

Question 14

What are impacts of inflation on a business?

Answer 14

• Rising prices cost money - customers need to be informed. Brochures need to be reprinted with price updates (menu costs)
• having to re negotiate pay claims before industrial action
• international competitiveness - high inflation in UK means products become more competitive abroad so they look competitiveness in international markets

Question 15

What is deflation?

Answer 15

When prices are falling and consumers delay spending because they think they can make future purchases at lower prices. This results in lower prices and lower profits. Postponing investments and cut production.

Question 16

What is an exchange rate?

Answer 16

• The price if one currency expressed in terms of another currency.
• The exchange rate determines how much of one currency has to be given up in order to buy a specific amount of another currency.

Question 17

What does SPICED stand for and what does it mean?

Answer 17

Strong, pound, imports, cheaper, exports, dearer
A stronger pound makes it cheaper for imports, but exports will seem more expensive for overseas customers

Question 18

What is the effects of changing exchange rates?

Answer 18

• demand may be affected by changing exchange rates (price elasticity of demand)
• stringer exchange rate will increase selling price for export customers
• likely to result in greater reduction in quantity demanded + overall reduction in export sales
• cause uncertainty in business as it makes planning and budgeting more difficult and difficult to predict demand

Question 19

What happens when interest rates change?

Answer 19

• interest rates have significant impacts on mortgages
• if loans and borrowings are on a fixed rate short term there is no affect of the increase on interest rates until it ends.

Question 20

What affects disposable income?

Answer 20

• real disposable income
• employment and job security
• household,d wealth
• expectations and sentiment
• market interest strategies

Question 21

What happens when interest rates go up?

Answer 21

• if interest rates go up businesses overheads go up
  -business may cut back in investments as it will be more expensive to take our credit
• there will be a fall in demand for a business products

Question 22

What are the main ways that government raise taxes

Answer 22

1. Direct tax - levied on income, wealth and profit
   - income tax (individuals)
   - corporation tax (businesses)
2. Indirect tax - levied on spending by consumers on goods and services
   - VAT

Question 23

The effects of changes in taxation?

Answer 23

1- consumer spending
- changes in taxation can increase and decrease
- personal disposable income effects the demand of products
2- prices -increase in taxation will raise the cost of a business
- absorb = less profit
- raise prices

Question 24

What is tax avoidance and evasion?

Answer 24

Increases in taxation often leaves businesses trying to avoid paying tax.
Maybe looking to relocate to countries with a low tax rate.