Theme 2.5

Question 1

Change in which areas can have a significant impact on businesses?

Answer 1

-interest rates
-inflation
-exchange rates
-taxation and government spending

Question 2

Define interest

Answer 2

A fee paid for using another party’s money. To the borrower, it is the cost of borrowing, to the lender it is the reward for saving

Question 3

Give a LOA for the drawback of high interest rates (7)

Answer 3

Question 4

Give a LOA for the benefit of high interest rates (5)

Answer 4

Question 5

Give a LOA for the benefit of low interest rates (7)

Answer 5

Question 6

Give a LOA for the drawback of low interest rates (6)

Answer 6

Question 7

Define inflation

Answer 7

A general increase in prices and fall in the value of money. This is shown as a percentage change from one point in time to another.

Question 8

How is inflation measured?

Answer 8

Calculate changes in the consumer price index (CPI) by gathering information about the prices of goods and services in the economy, then calculating an average price and converting it into an index number

Question 9

What are some causes of inflation?

Answer 9

Demand pull
Economic growth
Increased government spending
Lower interest rates

Question 10

What is demand pull?

Answer 10

This happens when the demand for goods and services exceeds their supply, causing prices to rise. It’s typically linked to strong economic growth or increased customer spending.

Question 11

How does economic growth affect demand pull?

Answer 11

When economies grow rapidly, consumers and businesses spend more, driving demand beyond the available supply

Question 12

How does increased government spending affect demand pull?

Answer 12

Large scale government expenditure e.g. infrastructure projects can boost demand

Question 13

How does lower interest rates affect demand pull?

Answer 13

Cheap borrowing encourages consumers and businesses to spend more

Question 14

Give a real world example of demand pull

Answer 14

USA post Covid stimulus
After Covid, the US government provided massive stimulus payments to households. With lower interest rates this increased consumer spending on goods and services especially when supply chains were still recovering cause demand pull inflation

Question 15

What are some causes of demand pull inflation in the economy?

Answer 15

Too much money
Increased supply of money
Hyperinflation
Lower interest rates

Question 16

Describe how too much money causes demand pull inflation

Answer 16

-Too much money chasing too few goods
-Demand is ‘the number of people willing and able to buy at a given time’
-If more people are able to buy there will be higher demand for luxury and normal goods. The main factors that effect people’s buying abilities are:
-increased wages, lower interest rates and increase in the supply of money

Question 17

What is hyperinflation?

Answer 17

When prices of goods or services are out of control and rise very quickly. It can happen if the government prints more money so prices will increase significantly.

Question 18

Describe how interest rates could cause demand pull inflation

Answer 18

-interest rates set the cost of borrowing money and set the reward for saving money. If interest rates are low there is an increase in the supply of money as it is cheaper to borrow
-the more people borrow the more money there is available to spend which leads to increased spending in the economy which increases demand, causing demand pull inflation

Question 19

What are some key causes of cost push inflation?

Answer 19

Rising commodity prices
Supply chain disruption
Higher wages

Question 20

What is an increase in inflation and fall in the value of money?

Answer 20

When cost of production for a business increase, leads to higher prices for goods and services. It often starts with an increase in the price of inputs like raw materials. Companies pass higher costs onto consumers through higher prices.

Question 21

How does rising commodity prices cause cost push inflation?

Answer 21

An increase in oil prices raise transportation and manufacturing costs for most industries

Question 22

How does supply chain disruption cause cost push inflation?

Answer 22

Events like natural disasters, geopolitical conflicts or pandemics can reduce the supply of key materials, driving up prices

Question 23

How can higher wages cause cost push inflation?

Answer 23

If workers demand higher pay and businesses agree, production costs rise

Question 24

Give a LOA for the drawback of the impact of increased inflation on the cost of sales (8)

Answer 24

Question 25

Give a LOA for the benefit of the impact of increased inflation on the cost of sales (5)

Answer 25

Question 26

Give a LOA for the drawback of increased inflation using income elasticity (8)

Answer 26

Question 27

Give a LOA for the benefit of increased inflation using income elasticity (5)

Answer 27

Question 28

What is an exchange rate?

Answer 28

The price or value of one currency in terms of another. It tells us how much of one currency can be bought with a certain amount of another currency.

Question 29

What is an import?

Answer 29

Goods and services that are produced abroad and brought into a country

Question 30

What is an export?

Answer 30

Products are produced in one country and taken abroad for sale

Question 31

How do you convert £1 to $

Answer 31

Question 32

What is appreciation within exchange rates?

Answer 32

-a rise in the £ against other currencies means the pound can buy more foreign currency -this may be called a high value or strong pound

Question 33

Describe depreciation within exchange rates

Answer 33

- a fall in the pound against other currencies means the pound will buy less foreign currency than before -this may be known as a low value or weak pound

Question 34

Give the acronym for a strong pound

Answer 34

Strong Pound Imports Cheaper Exports Dear

Question 35

Give the acronym for a weak pound

Answer 35

Weak Pound Imports Dear Exports Cheap

Question 36

What is fiscal policy?

Answer 36

-decisions the government makes in relation to tax, borrowing and spending -it is also a means by which a redistribution of income and wealth can be achieved e.g. by changing tax rates on different levels of income or wealth -to help achieve objectives such as steady growth, low unemployment, stable prices/low inflation, balanced balance of payments (boosts exports)

Question 37

Give a LOA for the drawback of increasing national insurance (9)

Answer 37

Question 38

Give a LOA for the benefit of increasing national insurance (10)

Answer 38

Question 39

What are the 5 main areas in which the law affects business?

Answer 39

Consumer protection Employee protection Environmental protection Competition policy Health and safety

Question 40

Describe consumer protection legislation

Answer 40

-consumer protection law is designed to ensure that consumers are treated fairly by the companies from which they buy. It covers issues such as products being correctly labelled, doing what they claim to do or rights of the consumer to exchanges or refunds of faulty goods -ensures that no firm can gain a competitive advantage by taking shortcuts to how their products are made as all products and services must meet a minimum legal standard so companies can’t use cheaper materials for a competitive edge

Question 41

What are two important acts of parliament within consumer protection legislation

Answer 41

-the sales of goods act- ‘goods must be fit for the purpose for which they are sold’ -the trade descriptions act- forces companies to claim ever claim and statement about a product is true

Question 42

Describe employee protection legislation

Answer 42

-employment laws to protect the rights and aims of employees at work. Rights include right to fair pay, maternity/paternity leave, sick leave, employment contracts being honoured, relationships with trade unions -national minimum wage legislation is the MOST importantly -businesses like to have minimal legal constraints as they crave flexibility in the way they deal with their staff

Question 43

Describe environmental protection legislation

Answer 43

-laws about impact of business on environment are a key area today, given the increased acceptance of needs to legislate to protect the environment. Firms must use certain materials in products, manufacturing processes and products must be recyclable. -MORE THAN OTHERS seems to most firms to be a source of additional cost without an upside

Question 44

What are some important environmental protection legislation laws

Answer 44

1. Landfill tax- forces businesses to pay £80 per tonne to deposit active waste in landfill sites 2. The environmental protection act 1990- requirement for risk assessments including environmental risks from different aspects of a business which has reduced river pollution

Question 45

Describe competition policy legislation

Answer 45

-even the strongest Laissez Faire believers see the value in government intervention to boost competition. The need becomes most obvious when one company tries to buy up a rival. In 2014, the new competition ans markets authority (CMA) took on the function of the now closed competition commission and office of fair trading

Question 46

What is monetary policy?

Answer 46

Using interest rates and money supply set by the central bank to control inflation and stabilise prices

Question 47

What is the government funded CMA responsible for?

Answer 47

Question 48

Describe the health and safety legislation

Answer 48

It is designed to ensure the safety of employees and customers within the workplace. The health and safety at work act 1974 places the major burden on employers. They have to provide safe working conditions for staff including physical conditions in which staff are required to work, precautions firms must take when planning work and the way hazardous substances are treated in the workplace. The job of the health and safety executive is to identify and prosecute any serious lapses by companies.

Question 49

Give a conclusion for the types of legislation

Answer 49

This is a noble goal because one country's legislation can only create a level playing field in the home market. Super-tough laws, perhaps on the environment, add to costs and therefore may make it hard for UK firms to win contracts overseas. For those who argue that laws are unnecessary because market forces will drive unscrupulous firms out of business, there is a disappointing lack of evidence to suggest that this argument is valid. Though plenty of businesses are convicted of breaking the law, it is a real challenge to find just one example of a firm that has been forced to close as a result of doing so. Is the incentive to avoid prosecution strong enough?

Question 50

Give a LOA for the consumer protection legislation (9)

Answer 50

Question 51

Give a LOA for the employee protection legislation (10)

Answer 51

Question 52

Give a LOA for environmental protection legislation (10)

Answer 52

Question 53

Give a LOA for the competition policy legislation (9)

Answer 53

Question 54

Give a LOA for health and safety legislation (9)

Answer 54

Question 55

Give a LOA for the drawback of all legislations (8)

Answer 55

Question 56

What are the business objectives within fiscal policy?

Answer 56

Steady growth Low unemployment Stable prices/ low inflation Balanced balance of payments