Theme 2 AO3 Flashcards
How does changing interest rates affect inflation
Increase interests rates > Less borrowing and investment > Less consumption > prices fall
How does inflation impact businesses?
Business uncertainty will be higher and businesses will delay investments due to volatile prices
How does inflation impact businesses? (2)
Businesses will be less internationally competitive as they will have to charge higher prices to account for their rising costs
How does inflation affect consumers who borrow?
Borrowers will gain from inflation as interest rates will be lower during inflation periods
How does inflation affect consumers?
Higher inflation > less purchasing power of currency > lower living standards
How does inflation affect savers?
Savers lose out because the value of their savings will decrease and investing would be a better option as interest rates are lower
How does rising exports affect an economy?
Rising exports > increased net trade > increased AD