The economic climate of a business

Question 1

What is meant by ‘economy’?

Answer 1

The economy is made up of consumers, businesses and governments (local and national), who take decisions on what to buy, sell, produce, import from overseas, where to work and many other matters.

Question 2

The economic climate refers to the state of an economy and considers whether an economy is:

Answer 2

• Producing a greater or smaller quantity of goods and services
• Providing consumers with falling or rising incomes
• Experiencing a rise or a fall in the amount that consumers can spend on goods and services
• Offering more or fewer jobs

Question 3

What happens during a strong economic climate?

Answer 3

Rising levels of employment, production, consumer incomes and spending.

Question 4

What happens during a weak economic climate?

Answer 4

Falling levels of employment, production, consumer incomes and spending.

Question 5

What are interest rates?

Answer 5

Interest rates refer to the cost of borrowing money, or the reward for saving money expressed as a percentage.

Question 6

How can a business reduce its risk with interest rates?

Answer 6

Getting a fixed interest rate so the amount of interest they pay stays the same and doesn’t fluctuate even if the interest rate changes.

Question 7

Is this always good?

Answer 7

No, if the interest rate goes down and your in a fixed interest repayment plan you will be paying back more than you may be.

Question 8

Businesses are affected by changes in consumer spending (having to react to produce/offer more or less of their goods and service), but what affects consumer spending?

Answer 8

Mainly income the more income you have available means you will spend more and change your spending habits and the opposite is the case when you have less income.

Question 9

What are the different types of goods that consumers choose from?

Answer 9

• Inferior
• Normal
• Luxury

Question 10

What is a inferior good?

Answer 10

Inferior goods are goods that are bought when incomes are low - Smartprice beans

Question 11

What is a normal good?

Answer 11

Normal goods are everyday goods that you’ll continue to buy unaffected by income changes - petrol

Question 12

What is a luxury good?

Answer 12

Luxury goods are goods that are bought when incomes are high - luxury holidays