2.1 Economic Factors

• Economic factors are related to the state of the economy
• High unemployment rates can lead to potential labor shortages for businesses.
• Exchange rates affect the competitiveness of imports and exports
• Gross Domestic Product (GDP) measures the total value of goods and services produced within a country
• Unemployment rates indicate labor market conditions
• Interest rates determine the cost of borrowing money
• Higher costs of raw materials due to inflation reduce business profit
• Businesses must balance pricing to maintain competitiveness and profitability during inflation.
• High unemployment rates can affect labor market conditions and recruitment for businesses.
• Interest rates influence investment decisions and loan affordability
• GDP measures the total value of goods and services produced
• Inflation rates measure the percentage change in the general price level
• Unemployment rates indicate the percentage of the labor force without employment
• Interest rates determine the cost of borrowing money
• High inflation can squeeze profit margins
• A retail business might raise prices by $5$ to cover increased costs
• Higher interest rates reduce the attractiveness of new investments.
• Higher borrowing expenses increase loan costs
• Lower exchange rates make a country's exports more competitive.
• Economic factors are external influences related to the state of the economy
• Interest rates affect investment and loan expenses
• High inflation reduces consumer spending.
• Match the macroeconomic indicator with its relevance to business:

  GDP ↔️ Indicates economic growth

  Inflation Rates ↔️ Impacts production costs

  Unemployment Rates ↔️ Affects labor market conditions

  Interest Rates ↔️ Influences investment decisions
• What does GDP indicate about an economy?

  Economic growth or recession
• Inflation rates measure the percentage change in the general price level
• Unemployment rates affect labor market conditions and recruitment.
• What is the cost of borrowing money referred to as?

  Interest rates
• Match the macroeconomic indicator with its relevance to business:

  GDP ↔️ Indicates economic growth

  Inflation Rates ↔️ Impacts consumer spending

  Exchange Rates ↔️ Affects export competitiveness

  Unemployment Rates ↔️ Affects labor market conditions
• How does inflation affect consumer spending?

  Reduces purchasing power
• Higher costs and lower spending during inflation can reduce profit margins.
• Businesses must adjust their pricing strategy to maintain competitiveness during inflation.
• What might a retail business do to retain customers during inflation?

  Offer promotions
• Order the effects of higher interest rates on business decisions:

  1️⃣ Higher borrowing costs

  2️⃣ Reduced investment attractiveness

  3️⃣ Impacted operational cash flow

  4️⃣ Decreased consumer demand
• Higher interest rates incentivize new projects and investments.

  False
• What happens to borrowing expenses when interest rates increase?

  They become higher
• Lower interest rates tend to boost consumer spending
• If a business borrows $500,000$ at $6$ interest, what is the annual interest expense?


  $30,000$
• What are the two main types of exchange rates?

  Floating and fixed
• Match the type of exchange rate with its description:

  Floating ↔️ Determined by market forces

  Fixed ↔️ Set and maintained by government
• What happens to British exports if the pound weakens against the US dollar?

  They become more competitive