3.7.5 Analysing the external environment to assess opportunities and threats: economic change

• Changes in interest rates affect the cost of borrowing
• A recession affects sales, profitability, and investment plans
• Fluctuations in exchange rates impact import/export costs
• What does the unemployment rate indicate?

  Consumer spending power
• Gross Domestic Product (GDP) reflects overall economic growth or recession
• Inflation or deflation influences pricing, costs, and purchasing power
• What should businesses monitor to analyze trends in major economic factors?

  Key economic indicators
• Analyzing inflation patterns helps businesses adjust pricing
• Monitoring the consumer confidence index signals shifts in overall demand
• Lower interest rates can enable businesses to borrow more cheaply for expansion

  True
• Inflation may require businesses to adjust their pricing
• Higher interest rates increase the cost of borrowing
• Recessions may allow businesses to pursue strategic acquisitions or investments
• How do fluctuations in exchange rates impact businesses?

  Import/export costs and competitiveness
• Fluctuations in exchange rates only affect businesses with international operations.

  True
• A recession leads to increased consumer confidence.

  False
• The inflation rate influences the purchasing power of consumers.


  True
• What trends in consumer spending power are indicated by the unemployment rate?

  Decreased spending power
• A recession leads to increased sales and profitability for most businesses.

  False
• Tracking GDP growth or decline can reveal broader economic expansion or recession
• Tracking interest rate movements informs decisions around borrowing and investment


  True
• What does analyzing trends in major economic indicators allow businesses to identify?

  Emerging opportunities
• Higher interest rates may create opportunities for businesses offering savings or investment products
• Economic growth can open up new market opportunities for expansion


  True
• What happens to exports when exchange rates become unfavorable?

  Become less competitive
• What does economic change refer to?

  Shifts in the broader economic environment
• Inflation increases the purchasing power of consumers.

  False
• What does a change in interest rates affect?

  Borrowing costs and investment
• Order the key economic indicators businesses should monitor:

  1️⃣ Gross Domestic Product (GDP)

  2️⃣ Unemployment rate

  3️⃣ Inflation rate

  4️⃣ Interest rates

  5️⃣ Exchange rates

  6️⃣ Consumer confidence index
• Match the economic indicator with its potential impact:

  Gross Domestic Product (GDP) ↔️ Reflects economic growth or recession

  Consumer confidence index ↔️ Signals changes in spending patterns

  Interest rates ↔️ Impact borrowing and investment
• The inflation rate only affects businesses that sell luxury goods.

  False
• Order the steps businesses should take to analyze trends in major economic factors:

  1️⃣ Monitor key economic indicators

  2️⃣ Track GDP growth or decline

  3️⃣ Monitor unemployment trends

  4️⃣ Analyze inflation patterns

  5️⃣ Track interest rate movements

  6️⃣ Monitor consumer confidence trends
• What does monitoring the unemployment rate indicate about the economy?

  Consumer spending power
• What do exchange rate fluctuations reveal about a country's exports?

  Competitiveness
• What are the key economic indicators businesses should monitor to analyze trends in major economic factors?

  Gross Domestic Product (GDP), Unemployment rate, Inflation rate, Interest rates, Exchange rates, Consumer confidence index
• How do favorable exchange rates benefit businesses in terms of exports?

  Boost competitiveness
• What might a recession allow businesses to acquire at lower prices?

  Competitors or assets
• Inflation can squeeze profit margins if businesses cannot raise prices fast enough

  True