theme 2-inflation

Question 1

inflammation definition

Answer 1

rise in average prices of goods and services across a whole economy

Question 2

how is inflation measured

Answer 2

measured using a virtual basket of goods and tracking prices over time

Question 3

how does high inflation affect a firm

Answer 3

-consumers have less real disposable income
so have to prioritise essentials e.g. paying gas and buy less non-essential goods
-menu costs
-this is where business has to change their tills, price tags, leaflets, labels
-high costs for raw materials/energy meaning harder to get supplies
-pressure to put wages up
-trade unions
-research costs (shoe leather costs)
costs of carrying out research based on what competitors are doing

Question 4

interest rates

Answer 4

incomes dropped low if banks want consumer spending to increase

Question 5

higher interest rates

Answer 5

reward for saving is higher
costs of borrowing is higher

Question 6

issues with increasing higher rates

Answer 6

the higher the interest rates, consumers save more and spend less
demands and services fall
-cost of borrowing is higher therefore consumer borrow less therefore spend less
therefore demand for goods and services falls
-however, not all markets will be affected the same
-issue for restaurants, aqua parks the things selling non essential goods
-however, depends on how many are on a fixed rate mortgage as this delays impact

Question 7

other impact on firms of high interest rates

Answer 7

more expensive to expand
more expensive to start up business
more expensive to buy machinery
overall, MORE EXPENSIVE
-longer profit margins meaning longer pay back periods