1.2.5 The wider economic environment

Question 1

What does the economic environment consist of?

Answer 1

The key economic factors that influence the behaviour of businesses and their customers.

Question 2

What does the business cycle show?

Answer 2

Fluctuations in the level of economic activities.

Question 3

How is economic activity measured?

Answer 3

By GDP.

Question 4

What are interest rates?

Answer 4

The price of money i.e. the cost of borrowing and the reward of saving.

Question 5

What effect does interest rates have on the business?

Answer 5

If they have loans then the amount they pay back will be effected, investments will become more or less attractive.

Question 6

What are the effects of high interest rates?

Answer 6

Affect customers’ willingness to spend, customers will have less disposable income, foreign investors will invest in UK banks.

Question 7

What does SPICED mean?

Answer 7

Strong pound: imports cheaper, exports dearer

Question 8

What effect does SPICED have on businesses?

Answer 8

Firms that import will be able to buy cheaper raw materials.
Firms that export will see less demand.

Question 9

What does WPIDEC mean?

Answer 9

Weak pound: imports dearer, exports cheaper.

Question 10

What effects does WPIDEC have on businesses?

Answer 10

There will be a greater demand from abroad for UK goods.
Input prices will increase if raw materials are imported.