The Economy's Impact on Businesses Flashcards
Q: What are interest rates?
The cost of borrowing money or the reward for saving money.
How do rising interest rates affect businesses?
Increases borrowing costs, reduces profits, and may limit expansion.
How do falling interest rates affect businesses?
Lowers borrowing costs, increases profits, and encourages expansion.
How do interest rates affect consumer spending?
Higher rates discourage borrowing and spending, while lower rates encourage them.
What is unemployment?
The number of people willing to work but unable to find jobs.
What is disposable income?
Income left after paying taxes and national insurance.
What happens when unemployment rises?
People have less disposable income, reducing spending on goods and services.
How can high unemployment benefit businesses?
More workers available, lower wage costs, and potential for increased demand for inferior goods.
Q: What are the three types of goods based on income changes?
A:
Inferior Goods – Demand falls as income rises (e.g., instant noodles).
Normal Goods – Demand rises as income rises (e.g., clothing).
Luxury Goods – Demand rises significantly as income rises (e.g., holidays).
Q: How does rising income affect spending?
A: Increases demand for normal and luxury goods, reduces demand for inferior goods.
Q: How does falling income affect spending?
A: Increases demand for inferior goods, decreases demand for luxury goods.
