The economy and business

• What does the term 'economy' refer to?

  All activities in a country concerned with the manufacturing, distribution, and use of goods and services
• How does the economic climate impact businesses?

  It affects prices, investment decisions, and the number of workers that businesses employ
• What is one factor that the economic climate affects in relation to businesses?

  Consumer spending
• What are the six main ways the economic climate affects businesses?

  1. Unemployment
  2. Changing levels of consumer income
  3. Changes in interest rates
  4. Inflation
  5. Government taxation (including NICs and VAT)
  6. Changes in exchange rates
• What is one effect of unemployment on businesses?

  It can reduce consumer spending
• How do changing levels of consumer income affect businesses?

  They influence consumer spending and demand for goods and services
• What does it mean if someone does not have a job?

  It does not necessarily mean they are unemployed.
• Why might some people choose not to work?


  They may be wealthy or have family responsibilities.
• What is one way that interest rates can impact businesses?

  They affect borrowing costs for investments
• Who are considered unemployed individuals?

  People who are actively seeking employment but are unable to find work.
• What are some reasons people become unemployed?

  • Made redundant: Last job ended due to no work available.
  • Dismissed: Last job ended due to breaking contract (e.g., misconduct).
  • School, college, or university leaver: Seeking work for the first time after education.
• What does unemployment indicate about an economy?

  It indicates that the economy is not making full use of available workers.
• How does unemployment affect economic growth?

  It slows down economic growth as the economy is not fully utilizing its workforce.
• What is the impact of higher unemployment on household income?

  Many households will have less income.
• How does higher unemployment affect businesses?

  It results in lower sales as people spend less.
• What happens to the demand for certain products and services during higher unemployment?

  The demand for cheaper alternatives increases.
• What type of products do consumers often switch to during higher unemployment?

  Supermarkets’ own-brand products.
• How do businesses that provide cheaper goods benefit during higher unemployment?

  They may experience higher levels of sales.
• What advantage do businesses have when unemployment increases regarding recruitment?


  They have more candidates to choose from for staffing needs.
• What can businesses offer to attract new staff during higher unemployment?

  They may offer lower pay while still attracting new staff.
• What is the minimum pay that businesses cannot offer less than?

  The national minimum wage.
• What is inflation and how does it affect businesses?

  Inflation is the rate at which prices rise, affecting purchasing power and costs for businesses
• What is income?

  Income is money that is received either from work or from investment.
• How does the amount of income someone earns influence their spending?


  The amount of income someone earns will influence how much they spend.
• How do increases in consumer income affect businesses?

  • Consumers have more money to spend.
  • Demand for goods and services increases.
  • Consumers may buy upgraded products or luxury items.
  • Businesses expect to sell more and may produce more.
  • Businesses might employ more staff.
• How do reductions in consumer income affect businesses?

  • Consumers have less money to spend.
  • Demand for goods and services decreases.
  • Consumers may buy cheaper alternatives or second-hand items.
  • Businesses expect to sell less and may reduce production.
  • Businesses might make staff redundant.
• What do businesses expect when consumer incomes fall?

  Businesses expect to sell less when consumer incomes fall.
• What is an example of a cheaper alternative consumers might buy when incomes fall?

  Supermarket own-brand products or second-hand items.
• How are different businesses affected by changes in consumer income?

  • Not all businesses see demand change in the same way.
  • The effect depends on what a business sells.
  • For example, pound shops often see sales increase when consumer incomes fall.
• Why might pound shops see an increase in sales when consumer incomes fall?

  Pound shops sell products at discounted prices, which attracts consumers with lower incomes.
• What does government taxation include that affects businesses?

  National insurance contributions (NICs) and value added tax (VAT)
• How do changes in exchange rates impact businesses?

  They affect the cost of importing and exporting goods
• What does the interest rate represent?

  The cost of borrowing money or the amount a saver receives in interest
• How is the interest rate usually expressed?


  As a percentage
• If the interest rate is 4%, how much interest is paid on a £100 loan?


  £4
• How much would a saver receive for every £100 invested at an interest rate of 4%?

  £4
• What are the effects of changes in interest rates?

  • Affect both savers and borrowers
  • Influence borrowing costs and savings returns
• What happens to savers when interest rates increase?

  Savers will receive more interest on their savings.
• How does an increase in interest rates affect savers' behavior?

  It encourages them to spend less so that they can save more.
• What is the impact of an increase in interest rates on borrowers?

  Borrowers will have to pay more back for money that is borrowed.