Theme 2 Part 2 ( Shit Gets Real)

Question 1

Interest rates?

Answer 1

The reward for saving and the cost of borrowing, expressed as a percentage of the money saved or borrowed

Question 2

What happens when interest rates fall?

Answer 2

Cost of servicing loans/debt is reduced- boosting spending power
Consumer confidence increases leading to more spending
Effective disposable income rises- lower mortgage costs

Question 3

Exchange rates?

Answer 3

Exchange rate is the price of one currency expressed in terms of another country 
Strong
Pound
Imports
Cheaper
Exports
Dearer

Question 4

Inflation?

Answer 4

A sustained increase in the average prices level of an economy.

Measured by the annual percentage change in the level of prices as measured by the consumer price index

Deflation is the opposite

Question 5

Inflation consequences

Answer 5

Money loses its value and people lose confidence in money as the value of savings is reduced
Inflation too high, prices lead to higher wage demands
Consumers and business lose out as their real income falls
Causes higher unemployment in the long term due to lack of competitiveness

Question 6

What might businesses do in an economic downturn?

Answer 6

Lower prices to try stay afloat

Question 7

What might businesses do during a recovery?

Answer 7

Start to increase prices as business is recruiting more staff

Question 8

Gross domestic product?

Answer 8

Measure of the value of output activity in the economy

Value used to assess changes in economic growth