1.2.5 The wider economic environment Flashcards
What are interest rates?
The price of borrowed money. In a loan Interest rates vary depending on the level of risk involved.
What is the impact on businesses if interest rates increase?
- Less likely to borrow money to expand
- slower growth
- Fewer new businesses starting up
- May slow down on investment
- Falling demand
What is the impact on consumers if interest rates increase?
- Less likely to borrow money to buy cars or holidays
- May reduce credit card spending
- Mortgage repayments will increase leaving people with less disposable income
- Standards of living may fall.
What is the impact on businesses if interest rates Decrease?
- Increase in investment and businesses will be trying to expand
- Lower cost of borrowing may lead to more start up businesses being created
- Many businesses will experience a rise in demand
What is the impact on consumers if interest rates decrease?
- Consumer spending may increase as it is cheaper to borrow money with loans and credit cards.
- Higher standards of living
- Mortgage payments may decrease leaving more disposable income.
What are exchange rates?
The price of one currency expressed in terms of another.
Most exchange rates ‘float’ what does that mean?
The price may go up or down
What does it mean if a currency depreciates?
The currency goes down in value
What does it mean if a currency appreciates?
The currency goes up in value
What happens if the pound appreciates?
S - strong P -pound I - imports C - cheap E - exports D - dear
What happens if the pound depreciates?
W - weak P - pound I - Imports D - dear E - exports C - cheap
What does Tax revenue pay for?
Government spending
What is direct tax?
Tax on earnings
what are examples of direct tax?
Income tax, national insurance and corporation tax
What is indirect tax?
Tax on spending