Transcript The Economy - Outwood Post 16 Centre Worksop

Economic Influences on Business
The Economy
Economic Variable
Present Rate
Affect on the Economy
Trade Cycle
Interest Rate
Exchange Rate
Inflation
Public
Spending
Tax
.
Evaluation-Affect on
specific firms
The Economy
Economic Variable
Present Rate
Affect on the Economy
Trade Cycle
Recession
Investment, consumer spending
down. Unemployment high,
business profits falling closure
rising.
Interest Rate
Low – base
rate 0.5%
Encourages spending,
borrowing and investment.
Good for business.
Exchange Rate
£1: euro 1.2
£1: $1.5
£ weak
Weak pound, generally
good for exporters,
imports more expensive.
Inflation
Last year 5%
Present fallen
to 3.0% Fairly
high
Cut in peoples’ living
standards, workers’
demand higher wages,
higher cost of raw
materials.
Particularly detrimental
for firms where unions
are strong or where goods
are rising rapidly e.g. oil,
hence transport
Large cuts
Reduced spending in
the economy,
unemployment,
recessionary effect
It will hit construction
hard and businesses
dependent on public
sector contracts
Public
Spending
Tax
Increased to
VAT 20%
Reduces spending
Evaluation-Affect on
specific firms
Little affect on necessities
Capital/luxury adversely
affected
Slight increase for inferior
Good for companies with
high debt. More goods
bought on credit.
Positive for UK exporters
Detrimental for UK importers
such as Matalan
Retail
The Economy
Economic Variable
Present Rate
Affect on the Economy
Trade Cycle
Recovery 2.5%
Growth
Investment, consumer spending
increasing. Unemployment
falling, business profits rising.
Interest Rate
Low – base
rate 0.5%
Encourages spending,
borrowing and investment.
Good for business.
Exchange Rate
£1: euro 1.2
£1: $1.5
£ weak
Weak pound, generally
good for exporters,
imports more expensive.
Has been high
at 5% now low
at just over 0%
This has stopped eroding
the value of peoples’ real
wages. Allows firms to
forecast and price more
accurately.
Inflation
Public
Spending
Large cuts
Tax
VAT 20%
Reduced spending in
the economy,
unemployment,
recessionary effect
Reduces spending
Evaluation-Affect on
specific firms
Little affect on necessities
Capital/luxury starting to pick
up after recession
Inferior still doing well after rec.
Good for companies with
high debt. More goods
bought on credit.
Positive for UK exporters
Detrimental for UK importers
such as Matalan
There has been falling
prices in oil that has hit
the oil companies, but
benefited most other
companies e.g. airlines,
even supermarkets
It will hit construction
hard and businesses
dependent on public
sector contracts
Retail