Theme 2 external Influences

Question 1

Definition of inflation,exchange rates, interest rates and the business cycle

Answer 1

I- the rate of increase in prices over a given period of time.
E- the price of one country’s currency expressed in the terms of another country’s currency.
IR- the percentage of an amount of money that is paid for its use over time
Higher rates - encourage lower borrowing and less spending.
BC- economic fluctuations between periods of expansion and contraction, factors such as consumer spending influence what stage in the cycle a business is at.
Recession(gdp shrinks economy getting smaller lower level of consumer confidence,) trough then recovery gdp rises, then peak.

Question 2

When uk exporting products to America how is the business affected when the appreciation of the pound against dollar and depreciation.

Answer 2

A- exports will become more expensive so will now have to lower price.
D- exports become cheaper so will need to produce more as demand will go up.

Question 3

How uk business importing raw material for, a,Erica be affected by appreciation of pound and depreciation.

Answer 3

A- imports now cheaper business can by more or the same either way reducing costs.
D- Imports now more expensive will have to buy less or seek materials from somewhere else.

Question 4

Positive and negative effects on business if:

Answer 4

Inflation -high revenues and profit for expansion of growth, less consumer spending income in fixed incomes so buying less.
Exchange rates + may increase import export opportunities, -might decrease opportunities.
Interest rates+ might lower costs if loan repayments decrease-might increase costs if repayments increase.
Taxation + lower taxation may lower costs so higher profits, - higher taxation may increase costs so limit supply.
Government spending + supplying government will increase government spending, -if spending is cut may have to look elsewhere for sources of spending.
Business cycle+ recovery and boom lead to increase consumer confidence and spending, -recession and slump show lower consumer confidence and spending.

Question 5

2 effects of economic uncertainty

Answer 5

Lower invest emit from banks and businesses reducing output
Lower levels of demand reducing consumer spending.

Question 6

One effect on a business form following these legislations:

Answer 6

Consumer protection - increase costs as products return and need more detail to quality.
Employee protection - increased costs in relation to wages and time.
Environmental protection - enhanced reputation form committing to reducing carbon footprint.
Competition policy- increased chance if sevruga for small businesses ad large business can’t use predator pricing.
Health and safety- increased costs to implement new policies to protect customers and employees.

Question 7

Three ways businesses could respond to increased competition in market:

Answer 7

Lower prices
Differentiate/ create new usp
Add more value

Question 8

Two ways in which market size can influence competition:

Answer 8

Larger markets can attract new entrants
Smaller markets are more attracted to niche products where value is more relevant than price.