2.5.1 Economic influences

• Inflation 


  Sustained increase in the general levels of price (Fall in the value of money)
• Effects of inflation on consumers

  • Deters customers from making significant purchases + overall decrease demand as there are less disposable incomes
• Other effects of inflation

  • workers demand higher wages to compensate for increasing cost of living
  • increased cost of supplies (business could increase price)
  • lose competitiveness in international markets
  • cut back on investments - focus on survival
  • less exports - lower profits
• interest rates 


  The percentage reward offered for saving money and the percentage charged for borrowing money
• Effects of interest rates on consumer

  • High interest rates discourages consumption and encourages saving
  • low interest rates encourage consumption and discourage saving
• GDP


  The value of all the goods/services produced in a country in a year
• Effects of a recession

  • High unemployment - customers have less disposable income & are likely to reduce spending
  • Low confidence - business may delay spending decisions and focus on reducing risk & survival.
• Effects of a boom

  • Decreasing unemployment - customers disposable income increases leading to higher sales revenue
  • High confidence - businesses look to expand + maximise profits, production levels likely to be increased