Theme 2 Topic 5 - Economic Influences Flashcards
Define The Business Cycle
Shows the stages in economic activity through period of boom. recession, slump and recovery
Define GDP (Gross Domestic Product)
A measure of total economic activity
Define Recession
2 consecutive quarters of negative economic growth
When the economy is growing…
… Business and consumer confidence rises leading to increased spending
During a recession, economic growth is…
Negative
What are the four stages of the business cycle?
Boom, Recession, Slump, Recovery
Define Inflation
The increase in general prices in an economy
What does inflation measure?
The rate at which average prices are rising
What is inflation measured by?
The Consumer Prices Index (CPI)
What do high rates of inflation lead to for businesses?
Increased costs, Lower profit margins if keep prices the same, Menu Costs
Define Menu Costs
When firms have to constantly reprint menus due to rising costs (inflation)
What do low rates of inflation lead to for businesses?
Business confidence as costs are more predictable
Define Deflation
Occurs when the CPI is falling (the average price level is falling)
What may consumers do due to deflation?
Delay purchase as they feel prices may fall further
Define Interest Rates
The cost of borrowing money
What is the rate banks charge influenced by?
The interest rate set by the Bank of England
A rise in interest rates in a country…
… Strengthens the exchange rate
Define Exchange Rate
The price of one currency expressed in terms of another
Define Appreciate
The £ has risen in value compared to other currencies
Define Depreciate
The £ has fallen in value compared to other currencies
What does S.P.I.C.E.D stand for?
Strong Pound makes Imports Cheaper and Exports Dearer
Define Fiscal Policy
Changes in taxation and government spending to try influence economic activity
What techniques can businesses use to prepare for change?
PESTLE analysis, SWOT analysis, Contingency/scenario planning
Define Competitive Market
Where there is intense rivalry between producers of a similar good or service
Define Monopoly
Where one firm dominates a market
Define Oligopoly
Markets are dominated by a few large companies
Define Barriers to Entry
Factors that make it difficult for a new entrant to set up
Large markets are dominated by…
… Strong brands with large marketing and R&D budgets
Small markets have less…
… Rivals, but sales potential is lower and strong rivals dominate
Define Monetary Policy
Where the Bank of England tries to influence the economy by using interest rate changes
Define Base Rate
The minimum interest rate set by the Bank of England
