Economy and business (2.5.1) Flashcards
What is Inflation?
How much price are going up in an economy
What will high inflation do to money?
Will feel like you have less money as things are getting more expensive and so you can buy less with your disposable income
What will low inflation do to money?
Low inflation will feel like you have more money so you may spend more of it as you can buy more with your disposable income
What does inflation depend on?
-Size of inflation change
-Consumer Disposable Income
-Length of Inflation Rise
-Liquidity
What are inflation rates?
The cost of borrowing money from a bank and the reward for saving money in a bank
What is the inflation rate target?
2%
What’s the impact of high inflation on consumers?
-Less purchasing power as decrease in value for money and so can buy less with same amount of money.
-Less savings as prices are increased
-Loss of goods and services as decreased availability of goods and services
What’s the impact of high inflation on businesses?
-Increased cost of Raw Materials
-Fewer people can afford certain goods and services
-Supply chains could face disruptions
-Savings stats look less attractive
-Interest rates on loans may rise
What are interest rates?
Cost of borrowing money from a bank and the reward for saving money in a bank
When interest rates go up what happens to the cost of borrowing?
Cost of borrowing goes up which puts people off getting a loan to make a bigger purchase
When interest rates go up what happens to the reward for saving?
Reward for saving goes up which encourages people to save their money instead of spending it
What is the impact of rising interest rates on business/ consumers?
-Reduce consumer spending and business investment
-More expensive to companies to borrow money from banks
-Reduce spending and consumer demand- decrease in inflation
-Reduces consumers disposable income
-Firms less likely to take out risky investments
What is the impact of falling interest rates on business/ consumers?
Businesses:
-Cost of borrowing decreases and so increased expansion
-Increased consumption and so increased demand for businesses
-Investment decisions adjusted
Consumers:
-Mortgages and loans pay less interest and so more disposable income
-Increase consumer spending
-Less interest on savings
What are Exchange Rates?
The price of one currency in terms of another. Value of one currency for the purpose of conversion to another
What are Imports?
Goods and services produced overseas and consumed by individuals/firms in the UK
