The wider economic environment

Question 1

What are interest rates ?

Answer 1

the cost of borrowing money and the reward for saving

Question 2

What is the current interest rate ?

Answer 2

5%

Question 3

Who decides the interest rates ?

Answer 3

the Bank of England, specifically the bank’s Monetary Policy Committee (MPC

Question 4

What do low interest rates mean for businesses ?

Answer 4

encouraging business investment and expansion

Question 5

What do low interest rates mean for mortgage payers ?

Answer 5

lower monthly repayments = more DI = more demand for products

Question 6

What do high interest rates mean for businesses ?

Answer 6

discouraging business investment and expansion

Question 7

What do high interest rates mean for mortgage payers ?

Answer 7

higher monthly repayments = less DI = less demand for products

Question 8

What are exchange rates ?

Answer 8

the value of one currency to another

Question 9

What are exchange rate mechanisms (ERM) ?

Answer 9

pre world war, currencies were fixed against the price of gold

Question 10

When was ERM abandoned by the UK

Answer 10

1992

Question 11

What is the floating exchange rate system ?

Answer 11

the central bank allowing currency to find its own level as currency, supply and demand drive external value (market forces)

Question 12

What happens if there is a strong pound ? (SPICED)

Answer 12

Strong
Pound
Imports
Cheap
Exports
Dearer

Question 13

What happens if there is a weak pound ? (WPIDEC)

Answer 13

Weak
Pound
Imports
Dearer
Exports
Cheaper