THEME 2, External Influences Flashcards
(16 cards)
What is an interest rate?
A rate that tells you the cost of borrowing or the return on savings.
The base rate is set by the Bank of England, which influences high street bank interest rates
What do high interest rates cause?
-Reduced demand due to less disposable income
-Encourages saving due to high return
What do low interest rates cause?
-Increased demand due to more disposable income
-Discouraged from saving due to low reward
What does the effect of interest rates on a product depend on and why?
PED, if its essential people will keep buying it no matter the price, vias versa
What is inflation and what are the 2 types?
Overall increase in the price of services and goods within an economy. Government aim for 2% inflation.
- Demand pull
- Cost push
What is demand pull inflation?
When there is excess demand which businesses cant supply.
So they increase prices to discourage purchases
What is cost push inflation?
When rising costs cause businesses to need to increase their prices to maintain a reasonable profit margin
What is the wage price spiral?
When businesses ‘expect’ inflation they may raise their prices, so they can cope with the suspected rise in cost from suppliers.
These rising prices cause workers to demand higher wages
Wages increase so people can afford more which also causes prices to increase(large cause of cost push)
How does inflation relate to interest rates?
High interest rates- reduce demand due to less disposable income, businesses must lower prices to remain competitive.
Low interest rates- increase demand, businesses raise prices to discourage the spending, so they can supply
What is the CPI?
Consumers price index, used to measure inflation in a country.
It is the value of a basket of aprox 700 relevant, essential goods. The average value of the basket is given an index number
What is the calculation to work out the index number?
Average value of the basket divided by base value of the basket. Answer multiplied by 100.
How does inflation affect business strategies?
-Premium businesses are most effected by inflation, their goods aren’t essential, must reduce prices accordingly
-Interest rates are lower than inflation=good expansion time because its cheap to borrow money(makes more sense to spend than save) (bank of england may often increase interest=cant benefit)
How does inflation affect business strategies?
-Premium businesses are most effected by inflation, their goods aren’t essential, must reduce prices accordingly
-Interest rates are lower than inflation=good expansion time because its cheap to borrow money(makes more sense to spend than save) (bank of england may often increase interest=cant benefit)
What is the fiscal policy?
the governments use of spending and taxation to influence the economy
What are 3 examples of laws protecting customers?
- Trade Descriptions Act(1968), business cant mislead customers with false packaging/info
- Sale of goods Act(1979), goods must be fit for purpose and of satisfactory quality
- Data protection Act(2018), stops misuse of data, cant hold unnecessary data
What are 3 examples of laws/directives protecting the environment and community?
- Landfill tax(1996)
2.Climate change act-UK PLCS must report annual greenhouse emissions
- Business must ensure their production process doesn’t produce excess pollution
