Economic influences

Question 1

define interest rates

Answer 1

The cost of borrowing and the return on savings

Question 2

what affect does a fall in interest rates have on a business?

Answer 2

they will have a decrease in the cost of borrowing

Question 3

what affect does a rise in interest rates have on a business?

Answer 3

They will have an increase in the cost of borrowing

Question 4

A change in interest rates will affect who?

Answer 4

Businesses and individuals who have debt to pay off, such as loans or mortgages.

Question 5

What affect can high interest rates have on the economy?

Answer 5

• less disposable income for consumers (who have borrowed money)
• Fall in demand
• Higher incentive to save
• Fall in consumer spending

Question 6

What affect can low interest rates have on the economy?

Answer 6

• More disposable income (for people who have borrowed)
• Incentive to spend
• Increase in demand

Question 7

What effect will interest rates have on demand for goods?

Answer 7

It depends on the elasticity of the product and the nature of the good.

Question 8

Define inflation

Answer 8

A general increase in the price of goods and services in a time period.

Question 9

What is demand pull inflation and when does it happen?

Answer 9

Inflation when there is too much demand for goods and services, this happens when there is an increase in disposable income.

Question 10

What is cost push inflation?

Answer 10

When rising costs push up prices.

Question 11

What will happen if wages, pensions and benefits don’t rise with inflation?

Answer 11

There will be a fall in spending as consumers will have less disposable income.

Question 12

What affect does inflation have on exports?

Answer 12

High inflation in the UK will make UK exports more expensive abroad which will reduce competitiveness of UK exports.

Low inflation in the UK will make UK businesses exporting goods more competitive.

Question 13

How is inflation measured?

Answer 13

using the Consumer Price Index which is a ‘basket’ of hundreds of goods and services that an average household would buy regularly.

Question 14

How can you work out the Index number?

Answer 14

Average value of basket / base value of basket x 100

Question 15

What goods are most likely going to be affected by inflation?

Answer 15

Luxury goods because demand for them usually falls if people have less income.

Question 16

define exchange rates

Answer 16

The price of one currency expressed in another.

Question 17

What will happen if the £ appreciates?

Answer 17

SPICED

Question 18

What will happen if the £ depreciates?

Answer 18

WPIDEC

Question 19

What are 3 types of government spending?

Answer 19

Infrastructure, human capital and physical capital

Question 20

Identify some features of a boom

Answer 20

• High profits

- Low unemployment

Question 21

Identify some features of a recession

Answer 21

• consumer and business confidence falls

- Production and demand falls

Question 22

Identify some features of a slump

Answer 22

• High unemployment

- High rates of business closure and failure

Question 23

Identify some features of a recovery

Answer 23

• Increasing consumer confidence

- Businesses start to invest

Question 24

Define economic uncertainty

Answer 24

Economic uncertainty is where firms and consumers are unable to predict their future sales or incomes.

Question 25

What are some examples of microeconomic uncertainty?

Answer 25

• A new competitor entering the market

- A shortage in raw materials

Question 26

What are some examples of macroeconomic uncertainty?

Answer 26

• A change in government
• Leaving a trade union
• Changes to legislation