6.2 The Economic Climate

• What does the economic climate refer to?

  State of the economy
• How do higher interest rates affect businesses?

  Increase borrowing costs
• The inflation rate measures the increase in prices
• Match the economic indicator with its impact on businesses.

  Gross Domestic Product (GDP) ↔️ Increased consumer demand

  Unemployment Rate ↔️ Reduced consumer spending

  Inflation Rate ↔️ Higher production costs

  Interest Rates ↔️ Increased borrowing costs
• Which economic factor can affect the prices of imported goods and services?

  Exchange rates
• Fluctuations in exchange rates affect business competitiveness
• Higher prices due to inflation may reduce consumer demand
• Inflation is the rate at which the general level of prices for goods and services is rising
• Match the effect of inflation with its impact on businesses:

  Higher Prices ↔️ Increases revenue but may reduce consumer demand

  Cost of Goods Sold (COGS) ↔️ Raises production costs, reducing profit margins

  Wage Pressures ↔️ Increases operational costs to retain employees

  Borrowing Costs ↔️ Makes loans more expensive due to higher interest rates

  Investment Uncertainty ↔️ Businesses delay projects due to economic unpredictability
• Higher economic growth leads to increased consumer demand and business opportunities.

  True
• Lower economic growth results in reduced consumer demand
• Higher interest rates increase the cost of borrowing money
• What do interest rates refer to?

  Cost of borrowing money
• Steps businesses can take to adapt to changes in interest rates

  1️⃣ Renegotiate loan terms

  2️⃣ Adjust investment plans

  3️⃣ Offset higher costs through efficiencies
• Lower interest rates under monetary policies encourage economic expansion.


  True
• A higher Gross Domestic Product (GDP) indicates increased consumer demand
• Which economic indicator reflects the health of the labor market?

  Unemployment rate
• What does high inflation do to the cost of goods sold (COGS)?

  Raises production costs
• Borrowing costs increase when central banks raise interest rates.
• Higher economic growth leads to increased consumer demand
• What does Gross Domestic Product (GDP) measure?

  Overall economic growth
• Which institution sets interest rates in most countries?

  Central banks
• How does higher GDP affect businesses?

  Increases business opportunities
• High inflation reduces business profits
• Higher GDP indicates increased consumer demand.


  True
• Lower economic growth can decrease business profitability.


  True
• How does inflation affect the cost of goods sold (COGS)?

  Increases production costs
• Order the actions businesses must take to maintain profitability during inflation:

  1️⃣ Cost management

  2️⃣ Pricing strategies

  3️⃣ Operational planning
• High inflation reduces business profit margins
• Wage pressures during inflation increase operational costs for businesses.


  True
• When more people are out of work, they have less disposable income
• Higher interest rates increase borrowing costs
• What are the two types of government policies that affect the economic climate?

  Fiscal and monetary
• What does the term 'economic climate' refer to?

  Overall state of the economy
• Higher economic growth leads to increased consumer demand
• Steps businesses should take to manage inflation

  1️⃣ Monitor price trends

  2️⃣ Adjust pricing strategies

  3️⃣ Implement cost-cutting measures
• Businesses may delay investments due to unpredictable economic conditions.


  True
• What does the increase in the cost of goods sold reduce for businesses?

  Profit margins
• Higher interest rates reduce consumer disposable income.

  True
• High inflation reduces business profit margins.


  True