Theme 2 Topic 5 - Economic Influences

Question 1

Define The Business Cycle

Answer 1

Shows the stages in economic activity through period of boom. recession, slump and recovery

Question 2

Define GDP (Gross Domestic Product)

Answer 2

A measure of total economic activity

Question 3

Define Recession

Answer 3

2 consecutive quarters of negative economic growth

Question 4

When the economy is growing…

Answer 4

… Business and consumer confidence rises leading to increased spending

Question 5

During a recession, economic growth is…

Answer 5

Negative

Question 6

What are the four stages of the business cycle?

Answer 6

Boom, Recession, Slump, Recovery

Question 7

Define Inflation

Answer 7

The increase in general prices in an economy

Question 8

What does inflation measure?

Answer 8

The rate at which average prices are rising

Question 9

What is inflation measured by?

Answer 9

The Consumer Prices Index (CPI)

Question 10

What do high rates of inflation lead to for businesses?

Answer 10

Increased costs, Lower profit margins if keep prices the same, Menu Costs

Question 11

Define Menu Costs

Answer 11

When firms have to constantly reprint menus due to rising costs (inflation)

Question 12

What do low rates of inflation lead to for businesses?

Answer 12

Business confidence as costs are more predictable

Question 13

Define Deflation

Answer 13

Occurs when the CPI is falling (the average price level is falling)

Question 14

What may consumers do due to deflation?

Answer 14

Delay purchase as they feel prices may fall further

Question 15

Define Interest Rates

Answer 15

The cost of borrowing money

Question 16

What is the rate banks charge influenced by?

Answer 16

The interest rate set by the Bank of England

Question 17

A rise in interest rates in a country…

Answer 17

… Strengthens the exchange rate

Question 18

Define Exchange Rate

Answer 18

The price of one currency expressed in terms of another

Question 19

Define Appreciate

Answer 19

The £ has risen in value compared to other currencies

Question 20

Define Depreciate

Answer 20

The £ has fallen in value compared to other currencies

Question 21

What does S.P.I.C.E.D stand for?

Answer 21

Strong Pound makes Imports Cheaper and Exports Dearer

Question 22

Define Fiscal Policy

Answer 22

Changes in taxation and government spending to try influence economic activity

Question 23

What techniques can businesses use to prepare for change?

Answer 23

PESTLE analysis, SWOT analysis, Contingency/scenario planning

Question 24

Define Competitive Market

Answer 24

Where there is intense rivalry between producers of a similar good or service

Question 25

Define Monopoly

Answer 25

Where one firm dominates a market

Question 26

Define Oligopoly

Answer 26

Markets are dominated by a few large companies

Question 27

Define Barriers to Entry

Answer 27

Factors that make it difficult for a new entrant to set up

Question 28

Large markets are dominated by...

Answer 28

… Strong brands with large marketing and R&D budgets

Question 29

Small markets have less...

Answer 29

… Rivals, but sales potential is lower and strong rivals dominate

Question 30

Define Monetary Policy

Answer 30

Where the Bank of England tries to influence the economy by using interest rate changes

Question 31

Define Base Rate

Answer 31

The minimum interest rate set by the Bank of England