External Influences

Question 1

Whats interest rates

Answer 1

The cost of borrowing or the return on savings.
Changes of internet rates will affect the business’ costs if it has a loan or a mortgage.
Interest rates also effect consumer spending = high interest rates = less disposable income, so market demand will go down.

Question 2

Whats inflation rates

Answer 2

The overall increase on price and services. (Too much demand, more then the economy can supply)

Question 3

What are the 2 types of inflation

Answer 3

Demand pull inflation = this is when there is too much demand (more then the economy can supply) and this is where there is a rise in disposable income so customers have more spending money. Businesses might respond to this and put their prices up.

Cost-push inflation = is when rising costs push up prices. Employee wage rates can make prices go up and this can make profit margins go down if the business doesn’t decide whether to put their prices down.

Question 4

Whats a wage price spiral

Answer 4

This is when ages increase causing people to be able to afford more which causes prices to go up.

Question 5

How does inflation effect exports

Answer 5

When inflation rates are high in the UK, is makes uk exports expensive abroad and this means the uk becomes less competitive globally

When inflation rates are low, the uk becomes more competively advantaged

Question 6

Advantages and disadvantages of inflation rates

Answer 6

Adv
Encourages spending- stimulating economic activity, businesses are more likely to invest and grow
If the inflation rates drop, it reduces the value of debt

Dis
Lead to wage-price spirals - workers demanding higher wages to keep up with the price of living.
Creates uncertainties - if inflation rates are constantly changing it i hard for a business to plan in the future, and this can impact investments.

Question 7

Whats deflation

Answer 7

Overall decrease of the price of goods and services within an economy, there isn’t enough demand

Can cause lower productivity and can lead to unemployment due to this business not having to make as many products
The business ill often lower the prices

Question 8

Whats the consumer process index

Answer 8

This is used to measure the inflation in a country and it uses index numbers to track the changes in the overall cost of a ‘basket’ of overall goods that many people would buy.

Question 9

Whats the index number

Answer 9

Index number = average value of the basket / base value of the basket X 100

Question 10

How does inflation effect business strategies

Answer 10

Business producing premium goods are more likely to be effected by inflation as customers have less money to spend and will start to look for cheaper alternatives, so businesses might start to lower their prices.
Periods of high inflation might be a good time to expand- if the interest rates are lower then the inflation rates then its cheaper to borrow money to invest in top a new premises or machinery.