2.5.1 Economic Influences

• Economic forecasting uses both qualitative and quantitative methods.
• Steps in the risk management process:

  1️⃣ Risk Identification

  2️⃣ Risk Assessment

  3️⃣ Risk Mitigation

  4️⃣ Monitoring and Evaluation
• Economic Influences refer to factors that affect the economy and, in turn, impact businesses.
• A rise in interest rates can increase borrowing costs for businesses.
• What is the effect of interest rates on businesses and consumers?

  Affects borrowing costs
• Higher inflation can increase production costs for businesses.
• Exchange rates affect export competitiveness and import costs.
• What are macroeconomic factors that affect the entire economy?

  GDP growth, inflation
• Match the macroeconomic factor with its description:

  GDP Growth ↔️ Increase in goods and services produced

  Unemployment Rate ↔️ Percentage of workforce without a job

  Inflation Rate ↔️ Rate at which prices increase

  Interest Rates ↔️ Cost of borrowing money
• GDP Growth measures the increase in a country's total goods and services produced as a percentage change from the previous period.
• Higher GDP growth can lead to increased consumer demand and business profitability.
• What are economic influences that affect businesses?

  Interest rates, inflation, exchange rates
• Interest rates affect business investment and consumer spending
• Inflation is the rate of price increase in an economy.
• How do exchange rates affect export competitiveness?

  Fluctuations affect export costs
• A rise in interest rates can increase borrowing costs
• What are macroeconomic factors that influence businesses?

  GDP growth, unemployment rate, inflation
• Higher GDP growth typically increases consumer demand and business profitability.
• High unemployment reduces consumer spending and labor costs
• What is the impact of higher inflation on businesses?

  Increases costs, reduces purchasing power
• Higher interest rates increase borrowing costs for businesses and consumers.
• Order the macroeconomic factors based on their primary effect on businesses:

  1️⃣ GDP Growth

  2️⃣ Unemployment Rate

  3️⃣ Inflation Rate

  4️⃣ Interest Rates

  5️⃣ Exchange Rates
• GDP Growth measures the increase in a country's total goods and services produced, leading to higher consumer demand
• What does the unemployment rate measure?

  Workforce without a job
• Higher interest rates increase the cost of borrowing
• What do exchange rates affect for businesses?

  Export and import costs
• The formula for GDP growth calculates the percentage change from the previous period.
• Higher GDP growth leads to increased consumer demand
• What may businesses do during lower GDP growth periods?

  Cut costs and delay expansion
• During economic downturns, retailers might need to close stores to maintain profitability.
• Inflation is the sustained increase in the general price level of goods and services
• What are two ways inflation affects costs for businesses?

  Increases raw material prices and labor costs
• Businesses might raise prices during inflation to maintain profitability.
• Rising labor costs due to inflation lead to higher wages
• How does inflation affect energy expenses for businesses?

  Increases electricity and fuel bills
• Match the type of unemployment with its cause:

  Frictional Unemployment ↔️ Job transition

  Structural Unemployment ↔️ Skills mismatch

  Cyclical Unemployment ↔️ Economic downturn
• What type of unemployment does a construction worker laid off during a recession experience?

  Cyclical
• Economic Influences are external factors that affect the economy and impact business operations
• A rise in interest rates can reduce consumer spending.
• How does inflation affect consumer purchasing power?

  Reduces it