Unit 2.3 - Economic climate of a business

Question 1

Define economy

Answer 1

The economy is made up of consumers, businesses and governments (local and national), who take decisions on what to buy, sell, produce, import from overseas, where to work and many other matters

Question 2

Define economic climate (4)

Answer 2

Refers to the state of an economy and considers whether an economy is:
Producing a greater or smaller quantity of goods and services
Providing consumers with falling or rising incomes
Experiencing a rise or fall in the amount that consumers can spend on goods and services
Offering fewer or more jobs

Question 3

Improving economic climate (4)

Answer 3

Rising levels of:
Employment
Production 
Consumer incomes
Consumer spending

Question 4

Weakening economic climate (4)

Answer 4

Falling levels of:
Employment
Production 
Consumer incomes
Consumer spending

Question 5

Benefits of unemployment (3)

Answer 5

Lower wages
Fill job vacancies easier
Grants are given to businesses that open in high unemployment areas

Question 6

Costs of unemployment (3)

Answer 6

Less output is produced
Less consumer spending - lower sales
Workers who have been unemployed for a while may become deskilled

Question 7

Businesses affected by lower incomes (3)

Answer 7

Larger proportion of income spent on needs/necessities
Less money spent on wants/luxuries
Businesses that sell inferior goods such as discount stores will benefit

Question 8

Businesses affected by higher incomes (3)

Answer 8

Lower proportion of income spent on needs/necessities
More money spent on wants/luxuries
Businesses that sell inferior goods such as discount stores will be worse off

Question 9

Define interest rates

Answer 9

Cost of borrowing and/or the reward from saving

Question 10

Interest rates go down (6)

Answer 10

Cheaper to borrow money
Lower returns when saving
Borrow more save less
Increased consumer spending, increased demand, increased output
Firms that have borrowed money have lower repayments
Incentive for businesses to borrow more

Question 11

Interest rates go up (6)

Answer 11

Expensive to borrow money
Higher returns when saving
Borrow less save more
Decreased consumer spending, decreased demand, decreased output
Firms that have borrowed money have higher repayments
Could lead to redundancies and higher unemployment