AQA BUSS4 - Assessing Changes in the Business Environment

Revision notes for the 'Assessing Changes in the Business Environment' chapter for BUSS4 AQA. No case studies included, just the theory from the specification.

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Business and the Economic
Environment
Macroeconomics
The study of the whole economy
The study of macroeconomics is primarily concerned with
the total level of spending/demand and production/supply
employment and unemployment levels
rate of interest and inflation
exchange rate
In effect, it is concerned with making the most efficient use of an economy's resources
The Circular Flow of Income
The circular flow of income, shown below, illustrates the interrelationship between the main
parts of the macroeconomy ­ ie. between producers, consumers, the government, and
other countries.
Firms receive revenue in exchange for goods and services they provide. The revenue is used
to pay incomes to workers and to other factors of production, in return for their
contribution to the goods and services available for sale. Income of households is either
spent on goods and services that are produced by UK firms, or withdrawn from the circular
flow through imported goods, being saved, or taxed. The revenue received by firms either
comes from customer spending or injections. Injections include spending by other firms,
govt spending, or export sales abroad.

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The Business Cycle
The regular pattern of ups and downs in demand and output within an economy , or
of gross domestic product growth over time. It is characterised by four main phases;
boom, recession, slump and recovery.
Some firms are more vulnerable to changes in the business cycle and GDP than others. The
extent to which a business is affected will depend on the income elasticity of demand for
the firm's products.…read more

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Economic Growth
An increases in the level of economic activity or real gross domestic product
Essentially, economic growth is then extent to which the volume of goods and services
being produced increases over time. If the GDP increases by 6% and the inflation is 2%, this
means the real GDP is 4%. Real GDP is a better measure of whether a country is getting
wealthier than GDP measured in pure monetary value.…read more

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Interest Rates
The cost of borrowing money and the return of lending money. They also measures
the opportunity cost to both individuals and firms of spending money rather than
saving it and receiving interest
A firm that is considering an investment project will need to consider the interest rates, as
they need to ensure the profits exceed the money that must be paid back due to the
interest rates.…read more

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The price of one country's currency in terms of another
There are exchange rates for pounds sterling against all other currencies, although the
most common ones are the rates against the euro, the US dollar and the Japanese yen.
Policies
There are two strategies the government can adopt in order to determine the exchange rate
of a country's currency
1. Free/Floating exchange rates ­ If there is a lot of demand the price will go up.…read more

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Impact on Exporters
A rise in the value of the pound less competitive export price
Fall in the value of the pound more competitive export price
Profit Margins:
A rise in the value of the pound will lead to a small profit margin, as the pound will be worth
more. This means that whereas, for example, a car that costs £8,000 to make, and sold for
the equivalent of £10,000, when the exchange rates increase, so will the price of the car.…read more

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Inflation
An increase in the general level of prices within an economy. It also means there is a
fall in the purchasing power of money
It is important to determine the difference between real and nominal values of money. For
example, a 2% pay rise may be a welcome bonus for an employee, but if inflation is at 2.5%,
their salary is actually decreasing 0.5% in real terms.
Causes
In general, the causes of inflation can be divided into two types: cost-push and demand-pull.…read more

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Unemployment
Number of jobless people who want to work, are available to work and are actively
seeking employment
Types of Unemployment
Structural ­ Long term unemployment resulting from a change in demand, supply or
technology in the economy, which produces a fundamental decline in an industry
Cyclical ­ Unemployment resulting from an economic downturn or recession
Seasonal ­ Tends to be of a temporary nature and disappears in the next season
Implications for Business
Both high and low levels of unemployment can affect a firm's…read more

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An important factor to consider is to ensure that strategies put in place to deal
with the problem, but doesn't have a negative effect in the long term.
Globalisation of Markets
the process enabling financial and investment markets to operate internationally
The pace, scope and scale of globalisation has accelerated dramatically due to modern
communication (information can be spread rapidly), and because trade has increased, which
is made easier by international agreements to lower tariff and non-tariff barriers on exports.…read more

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UK and other countries, the degree of trade protection in the
form of import controls, and exchange rates.
Emerging Markets
An international area that has potential to grow and develop in terms of productive
capacity, market opportunities and competitive advantage
Development of Emerging Markets
As well as India and China, Eastern Europe is a good example of an emerging market.…read more

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