1.5.4 economy

• How can the economic climate affect the business?

  Unemployment

  Changing levels of consumer income

  Changes in interest

  Inflation

  Government taxations including national insurance and value added tax

  Changes in exchange rates
• what’s the impact of high demand economic activity?

  consumer incomes rise,

  inflation may rise,

  unemployment may fall,

  interest rates may rise,

  the pound may become stronger
• what’s the impact of low demand economic activity?

  Consumer incomes fall,

  Inflation may fall,

  Unemployment may rise,

  Interest rates may fall,

  The pound may become weaker
• What’s the level in demand?

  Refers to the spending that takes place in an economy , demand can come from consumers, government, business or overseas.
• What’s unemployment?

  Those who seek employment but are unable to find work
• What are the impacts of unemployment?

  High levels of unemployment may make it easier for businesses to recruit new employees- however overtime, the number of employees with skills that the businesses need will fall.

  High unemployment Lower consumer demand for most businesses’ products/services.

  Economic activity falls when unemployment is high, the businesses’ sales revenue will also fall
• What’s inflation?

  The changes in the average level of prices in the economy
• What’s the impact of inflation?

  A sharp rise in inflation will cause the business’s costs to rise unexpectedly- this can have a direct impact on profits.

  Consumers’ costs rise whe. The rate of inflation rises - this reduces The customers’ disposable income , meaning they’ll buy fewer goods and services from businesses. An increase in inflation causes a business’s costs to rise, the business can either absorb the costs or pass them onto its customers by raising prices
• What’s an interest rate?

  The percentage reward or payment over a period of time that is given to savers on savings or paid by borrowers on loans
• What can a higher inter rate mean?

  An increase in the cost of borrowing;

  Businesses in a variable rate may struggle to repay loans,

  Small businesses are less likely to borrow money to start up or to expand,

  Customers are less likely to spend money as borrowed money costs more, so consumer spending falls
• What can a lower interest mean?

  The lower the cost of borrowing;

  Businesses will have more money to spend and cash flow may improve,

  Businesses may borrow money for a start-up or expansion,

  Customers are more likely to borrow and to spend their money - customer spending rises
• What’s an exchange rate?

  The price of buying foreign currency
• What’s the effect of a fall in the value of the pound?

  Goods for UK exporters of goods- price of exports fails, sales increase.

  Good for UK tourism - prices cheaper to foreigners, tourism increases.

  Good for UK businesses - imports more expensive, people but more UK goods.

  Bad for UK importers of materials - imports more expensive, costs rise.
• What’s the effect of a rise in the value of the pound?

  Bad for UK exporters of goods - price of exports rises, sales fall.

  Bad for UK tourism - prices more expensive for foreigners, tourism falls.

  Bad for UK businesses - imports cheaper, people but fewer UK goods.

  Good for UK importers of materials - imports cheaper, costs fall