Economy

• the economy:

  activities in a country concerned with the making, distribution, and use of goods and services
• consumer spending levels affect:

  -prices

  -investment decisions

  -number of workers that businesses employ
• economic climate influences on business:

  -unemployment

  -changing levels of consumer income

  -changes in interest rates

  -inflation

  -government taxation

  -changes in exchange rates
• how people become unemployed:

  -made redundant

  -dismissed

  -a school, college or university leaver
• impact of unemployment:

  -less household income = lower sales

  -demand increase (swap to cheaper alternatives)

  -more possible staff choices = able to put lower wages
• income:

  money that is received either from work or from investment
• consumer income increase:

  -demand for goods/services increase

  -employ more staff (to sell/produce more goods)
• consumer income reduction:

  -demand for cheaper alternatives

  -staff may be made redundant (selling less goods)
• interest rate:

  the rate charged for borrowing money over a period of time, or the reward for saving money (stated as a percentage)
• interest rates: savers

  increase = spend less

  decrease = spend more
• interest rates: borrowers

  increase = discouraged

  decrease = encouraged
• interest rate: equation

  total interest/borrowed amount x 100
• inflation:

  a general and sustained increase in prices over time (measured using an index, eg the Consumer Prices Index + is stated as a percentage)
• high rates of inflation =

  -lower levels of consumer spending

  -fall in sales for the business
• impact of inflation on businesses:

  -staff wage increases

  -fall in demand for that country's goods
• types of taxes:

  -income tax

  -corporation tax

  -national insurance contributions

  -value added tax (vat)

  -council tax
• impact of taxation on businesses:

  increase in income tax,

  -customers have less money to spend

  -businesses sell less -> reduced level of investment

  increase in vat,

  -higher prices

  -inflation occurs
• currency value is determined by:

  -supply

  -demand
• why exchange rates are important:

  -transport and sales of goods/services imported

  -increasing globalisation + improved technology
• impact of exchange rates:

  pound increases = more foreign currency can be purchased (appreciation)

  weaker pound = depreciation

  exports - benefit

  imports (raw materials) - spend more