The Economic Climate Of Business Flashcards
The economy
Made up of millions of consumers, many thousands of businesses and governments. All take decisions on what to buy and produce.
Interest rates
Are the cost of borrowing money or the reward for saving it, expressed as a percentage.
Economic climate
The state of key factors within a country such as the level of goods produced and the number of jobs avaliable.
Effects of a fall in interest rates
Consumers may not save money and spend existing savings on goods and services. May be more willing to borrow money as because lower interest rates mean they have to pay back less. People will have more desposable income and possibly spend it on luxury goods.
Effects of a rise in interest rates
Consumers may decide to save more money as interest rates are higher. May not spend as much as usual, possibly impacting some business’s sales, and would be less likely to borrow money because they’ll have to pay back more. Businesses that sell luxury goods will suffer.
Overdraft
A flexiable loan which a business can use whenever necessary up to an agreed limit.
Effects on a business from regularly borrowing money
Rising interest rates mean that a business’s costs increase and could (in extreme cases) bankrupt a business. Falling interest rates means borrowing costs are lower but savings will have reduced returns.
Fixed interest rates
A business may negotiate for a fixed interest rate which won’t increase or decrease, however it will likely be higher to begin with.
Increases in employment
Likely to happen when the economic climate is strong and improving, therefore, rises in employment will happen because more workers are needed. Wages may also rise, as certain types of workers become scarce.
Decreases in employment
Happens when economic climate is weakening, less workers are needed. Less consumer spending due to lower wages because less people are in work.
Consumer spending
The value of goods and services bought by consumers over a time period, usually a month or year. Is lower when wages are lower.
Income elastic products
Are those whose sales are sensitive to change in consumers incomes. Usually luxury products.
