2.5.1 Economic Influences

Cards (8)

  • Factors Affecting the Economic Climate

    -Business cycle
    -Inflation
    -Interest rates
    -exchange rates
    -taxation and government spending
  • Business Cycle

    The regular fluctuations in GDP/ economic activity
  • Effects of the Business Cycle

    -In a boom, there is increased consumer/ investor confidence
    -Too much output is unsustainable leading to a bust/ recession
  • Negative Effects of Inflation
    -Erodes the spending power of savings causing a fall in living standards
    -Damages profitability
    -UK companies lose their ability to compete with foreign firms
  • Effects of High Interest Rates

    -Consumer demand decreases
    -High interest means lower profits
    -Less investment due to high opportunity cost
  • Effect of Exchange Rate

    -Weak pound means UK exports are more competitive
    -A strong pound means importing raw materials is cheaper
  • Effects of Government Spending/ Taxation

    -Governments increase taxes which decreases spending power to reduce demand which harms firms
    -Reduced government spending leads to redundancies and reduces incomes
    -Firms can prepare in advance for this
  • Factors Affecting Uncertainty
    -The value of the pound
    -The rate of economic growth
    -The value of oil this makes planning difficult