T41- Economic influences

• What is PESTLE and what is it used for?

  PESTLE can be used to determine business growth or decline Based on 6 factors (Politician, economic, social, technology, legal and environment)
• What factors of politics can affect business growth/ decline?

  • competition policy
  • industry regulation
  • government spending and tax policies
  • business policies and incentives
• What economic factors effect business growth/decline?

  • interest rates
  • consumer spending and income
  • exchange rates
  • business cycle (GDP)
  • inflation
• What social factors affect business growth/ decline?

  • demographic change
  • impact of pressure graphs
  • consumer taste and fashion
  • changing lifestyles
• What technology factors affect business growth/ decline?

  • disruptive technologies
  • adoption of mobile tech
  • health and safety laws
  • environmental legislation
• What environmental factors affect business growth/ decline?

  • sustainability
  • tax practices
  • ethical sources (supply chain)
  • pollution & carbon emissions
• What is a boom and how does it affect businesses? (Business cycle)

  • wages are increased and prices of goods and services are also increased
  • Unemployment is low
  • Increased confidence = higher profits and investments
  • increased wages people have more disposable income to spend on products and services (higher consumer spending)
• How do you come out of a boom?

  Interest rates will increase to stop people from taking out credit and loans which lowers consumer spending on products and services.
• What happens in a recession and how does it affect businesses?

  In a recession there is High unemployment because businesses cant afford to supply jobs and wages with low profits.
• What is inflation?

  Inflation is a sustained increase in the average price level of an economy. This is when the government will measure a typical ‘basket’ of goods to calculate the increase/ decrease in price.
• Why is inflation bad for economy?

  • brings uncertainty for future
  • businesses will cut back on investments meaning less jobs, profits and tax for government
• What are two ways a business can deal with inflation?

  • absorb the costs and generate less profits
  • charge higher prices to cover increased costs of product
• What is consumer price index and how does the government take it into account?

  • CPI is the main measure of inflation in the uk
  • UK government has set the Bank of England a target inflation to 2%
  • there aim is to achieve a sustained and stable inflation
  • low inflation is also known as price stability
• What are impacts of inflation on a business?

  • Rising prices cost money - customers need to be informed. Brochures need to be reprinted with price updates (menu costs)
  • having to re negotiate pay claims before industrial action
  • international competitiveness - high inflation in UK means products become more competitive abroad so they look competitiveness in international markets
• What is deflation?


  When prices are falling and consumers delay spending because they think they can make future purchases at lower prices. This results in lower prices and lower profits. Postponing investments and cut production.
• What is an exchange rate?

  • The price if one currency expressed in terms of another currency.
  • The exchange rate determines how much of one currency has to be given up in order to buy a specific amount of another currency.
• What does SPICED stand for and what does it mean?

  Strong, pound, imports, cheaper, exports, dearer

  A stronger pound makes it cheaper for imports, but exports will seem more expensive for overseas customers
• What is the effects of changing exchange rates?

  • demand may be affected by changing exchange rates (price elasticity of demand)
  • stringer exchange rate will increase selling price for export customers
  • likely to result in greater reduction in quantity demanded + overall reduction in export sales
  • cause uncertainty in business as it makes planning and budgeting more difficult and difficult to predict demand
• What happens when interest rates change?

  • interest rates have significant impacts on mortgages
  • if loans and borrowings are on a fixed rate short term there is no affect of the increase on interest rates until it ends.
• What affects disposable income?

  • real disposable income
  • employment and job security
  • household wealth
  • expectations and sentiment
  • market interest strategies
• What happens when interest rates go up?

  • if interest rates go up businesses overheads go up
  • -business may cut back in investments as it will be more expensive to take our credit
  • there will be a fall in demand for a business products
• What are the main ways that government raise taxes?

  1. Direct tax - levied on income, wealth and profit

  income tax (individuals)

  corporation tax (businesses)

  2. Indirect tax - levied on spending by consumers on goods and services

  • VAT
• The effects of changes in taxation?

  1. consumer spending

  changes in taxation can increase and decrease

  personal disposable income effects the demand of products

  2- prices -increase in taxation will raise the cost of a business

  absorb = less profit

  • raise prices
• What is tax avoidance and evasion?

  Increases in taxation often leaves businesses trying to avoid paying tax. Maybe looking to relocate to countries with a low tax rate.