4. The Economy and Business

• An economy of a country includes all activities to do with the manufacturing, distribution and use of goods and services
• How well the economy is doing, the economic climate, will have an impact on businesses through lots of different factors
• High unemployment


  • Impact on people: More people looking for work, may be desperate for a job, need to reduce family spending, less money to spend

  Impact on businesses: Can recruit easily, people may accept a lower wage, consumers are less confident, non-essential purchases reduce
• Low unemployment


  • Impact on people: Fewer people looking for work, can pick & choose your job, employees have job security, more money to spend

  Impact on businesses: Harder for business to recruit, business pay higher wages, consumers are confident to spend, non-essential purchases increase
• Consumer income


  The amount of money people are paid
• Changes in consumer income


  Low = consumers will buy lower priced goods, more likely to shop in budget stores, likely to buy less, won't update unless necessary (consumer confidence = low) High = Consumers will buy higher priced goods, more likely to shop buy luxuries, likely to buy more, will update/replace (consumer confidence = high)
• Inflation


  The increase of prices over time
• The Bank of England aim to set interest rates at a level that will help keep inflation steadily rising
• High inflation


  Prices and costs are rising rapidly

  If wages don't rise at the same rate, consumers won't have as much spending power

  Business' costs will increase too quickly to plan for
• Low inflation


  Prices and costs are rising slowly

  If wages rise at the same rate as low inflation, consumers have stable spending power

  Business' costs will increase at a manageable rate
• Interest


  What you pay a bank for borrowing their money (e.g. a loan), or what banks pay you for saving your money with them
• Changes in interest rates


  1. Banks set a base rate to try to stop the rate of inflation rising too quickly

  2. Banks add on to this base rate as much or little as they want

  3. There are different interest rates for savings and different ones for borrowing
• High interest rates


  Good for savers - more interest added = more money in the bank

  Bad for borrowers - more expensive = less money to spend
• Low interest rates


  Bad for savers – less interest added = less money in the bank

  Good for borrowers - less expensive = more money to spend
• Personal taxes


  • Income tax
  • Council tax
• Business taxes


  • Corporation tax
  • Business rates
• Taxes paid by both


  • National insurance
  • Value added tax (VAT)
  • Other taxes (carrier bags, sugar...)
• The UK government gets its money from taxes and needs money for government spending