what is the economic environment
economic factors that influence the behaviour of a business + their customers
how is economic activity measured
GDP (a countrys output in a year)
what is inflation
how much the prices of goods and services increase over time
what are the effects of inflation
-increased costs;
-decreased demand
-lower quality materials
-staff wages increase
what are interest rates
-the cost of borrowing money or the reward for saving money
-set by bank of england
whatre the effects of interest rates on a business
-higher costs on loans/ overdrafts
-investments less/more attractive, may affect growth
-may affect demand due to less disposable income
what is taxation
process of imposing charges on businesses or individuals by the government
what tax are businesses charged
corporation tax on profits
what tax are consumers charged
-VAT on goods
-income tax on earnings
what are exchange rates
the price of one currency on terms pf another
what is appreciation
an increase in the value of a currency
what is depreciation
a decrease in value of a currency
how do you convert currency/ calculate exchange rates
currency x exchange rate
eg £50 x 1.48 =€74
what is the effect of a strong pound on businesses
SPICED: strong pound, imports cheaper, exports dearer
-firms importing will have lower costs
-firms exporting will see less demand
what is the effect on a business of a weak pound
WPIDEC: weak pound, imports dearer, exports cheaper
-firms importing will have higher costs
-firms exporting will have morw demand
what is government spending
the expenditure by the government on supplying goods and services to achieve economic and political objectives
what is the business cycle
regular pattern of ups and downs in economic activity
what are the stages of the business cycle
-recession
-boom
-slump/depression
-recovery
what happens in a boom
-high consumer spending (disposable income)
-prices + cost rise faster
-low unemployment
-growth in economy creates jobs
what happens in a slump/depression
-prolonged period of declining GDP
-weak consumer spending
-business failure
-rising unemployment
-deflation
what happens in recovery
-consumers start to spend again
-more confidence to invest
-unemployment slowly stops growing
what happens in a recession
-high unemployment
-less consumer spending
-lower profits
- less investment
what is economic uncertainty
the economic environment is uncertain + prone to shocks (unpredictable events)
give examples of shocks
-political unrest
-outbreak of disease
-natural disaster
