Economic Environment

• What must businesses consider regarding the economic environment?

  The impact of changes in the economic environment
• How can changes in the economic environment affect businesses?

  They can affect strategic and functional decision making
• What does Gross Domestic Product (GDP) represent?

  The value of goods and services produced
• How does GDP growth influence business decisions?

  It likely coincides with an increase in demand
• What strategic decision might a business make during a GDP boom?

  To diversify and enter a new market
• What is taxation in the context of businesses?

  The tax paid by businesses on profits
• How can changes in taxation affect business decisions?

  Increased taxation reduces profit after tax
• What must a business prioritize if there is less money to invest due to taxation changes?

  To prioritize better investment decisions
• What are exchange rates?

  The value of one currency in terms of another
• How can changes in exchange rates affect business decisions?

  They can affect importing or exporting processes
• What happens if the Pound Sterling weakens against the Euro for Lidl?

  The price of imports will increase
• What is inflation?

  The general increase in price levels
• How does inflation affect business decision-making?

  Rising costs may require price increases
• What does fiscal policy involve?

  Government expenditure and taxation to influence demand
• How can changes in government expenditure and taxation affect businesses?

  They can increase or decrease demand
• What does monetary policy control?

  Money supply and interest rates
• How can increasing interest rates affect business decision-making?

  Consumers may save more and spend less
• What do open trade and protectionism refer to?

  The ability to trade with or without barriers
• How can protectionist measures affect businesses?

  They can reduce international trade
• How are banana sellers affected by protectionist measures?

  They face restrictions on banana trade
• What is globalisation?

  The trend for markets to become unified worldwide
• What is an advantage of globalisation for businesses?

  Opportunities to expand into international markets
• What is a disadvantage of globalisation for local businesses?

  Increased competition can reduce market share
• How can targeting emerging economies benefit a business?

  It can expand the product life cycle
• What do emerging economies offer businesses?

  New markets to target for increased sales
• How can offshoring production to an emerging economy benefit a clothing manufacturer?

  Labour may be cheaper compared to home country