2.5 External Influences Flashcards
What are five economic influences on businesses?
Inflation
Exchange rates
Interest rates
Taxation and government spending
The business cycle
What is inflation?
The rate at which the general level of prices for goods and services is rising. Measured by the consumer price index (CPI).
What problems does inflation pose to a business?
Cost pressures
Reduced sales
How does the government seek price security?
Through monetary policy achieved through the Bank of England and the Monetary Policy Committee (MPC).
What are the effects of rising exchange rates?
Exports from UK more expensive
Imports less expensive
SPICED
What are the effects of falling exchange rates?
Exports from UK cheaper
Imports to UK more expensive
WPIDEC
What are interest rates?
The cost of borrowing money
What are the implications of interest rates?
Higher costs of borrowing for loans and mortgages
Encourage greater savings so lower demand
Not adverse for all businesses
Discount retailers may benefit
Rising business costs
Postpone investment decisions
What are the implications of falling interest rates?
Lower costs of borrowing for loans and mortgages
Encourage greater spending so higher demand
Luxury retailers may benefit
Falling business costs
What are the different types of direct taxes?
Income tax
Corporation tax
National insurance payments
What are the different types of indirect taxes?
Value added tax (VAT)
Excise duty
Green taxes
What is fiscal policy?
The means by which the government adjusts its spending levels and tax rates to monitor and influence the country’s economy.
What happens when taxation is increased?
Spending and growth decreased.
What happens when taxation is decreased?
Spending and growth increased.
What are the four stages of the business cycle?
Boom
Recession
Slump/trough
Recovery/expansion
