304 Economic Factors Flashcards
(32 cards)
what is GDP?
total value of all goods/services produced in a country over specific period (usually a year).
why does economic cycle matter for business?
influences decisions about hiring, investment and pricing.
why does economic cycle matter for consumers?
affects jobs, wages and how much people spend.
why does economic cycle affect the government?
shapes policies like taxation nd public spending.
what are 4 key economic performance indicators?
inflation, interest rates, unemployment rate(%), demand.
what is inflation?
sustained rise in economy’s general price level. prices of goods/services increases over time.
what is the consumer price index?
tracks changes in price of ‘basket of goods’ purchased by average household. eg clothing, food, transport.
each item weighted according to amount spend on them.
what is the target for inflation each year?
2%
what is cost push inflation?
occurs when overall prices increase (inflation) due to increases in cost of wages/raw materials. forces businesses to increase prices.
what is demand pull inflation?
occurs when level of supply is insufficient to meet increased levels of demand. increase price to maximise profits.
how could a business respond to cost push inflation and what does this depend on?
change supplier, make redunancies, offshore, outsource.
depends on:
quality of supply, capacity utilisation, logistic factors, quality control.
how could a business respond to demand pull inflation and what does this depend on?
increase or decrease price.
depends on:
price elasticity of demand
shareholder demands.
what happens in recessions?
declining economic activity.
GDP falling
high unemployment
businesses making redundancies
decreasing investment, customer spending, interest rates and inflation.
what happens in a slump?
lowest point of economic cycle.
GDP at lowest
economic activity stagnates
unemployment
low investment, spending, inflation and interest rates.
what happens in growth (recovery)
economy begins to improve
GDP increases
business hires again
consumer confidence increases
more spending
increasing inflation and interest rates.
what happens in boom?
period of rapid economic growth
GDP peaks
value of goods/services at highest
high employment
investment, spending, interest rates and inflation all increase.
why is inflation low in recessions/slumps?
lower levels of demand
why is inflation higher in recovery/booms?
increased levels of demand allow prices to increase.
why is demand higher in recovery/booms?
higher levels of employment lead to disposable incomes and increased customer confidence.
which businesses may be winners in recessions/slumps?
inferior brands such as aldi
which brands may be winners in booms/recovery?
luxury brands such as waitrose.
what is the exchange rate?
value of one currency expressed in terms of another currency
what can exchange rates determine?
where business buys supply
where business produces
where businesses headquarter
who they hire
pricing strategy
where product is sold
what is the acronym for strength of pound regarding imports/exports?
Strong
Pound
Imports
Cheaper
Exports
Dearer
and vice versa!
