Topic 4 - Economic consideration

business studies unti 1 

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Businesses and the Economic Environment 1

  • Inflation is an increase in the price of goods and services 
  • There are two types of inflation:
    • Demand-pull inflation 
      • This is caused by too much demand (more than the economy can suply)
    • Cost-push inflation
      • This is caused by the rising costs pushing up prices
  • When inflation is high, spending goes up temporarily - rush to buy more before prices go up, but then spending goes down as people can afford less
  • Deflation  is a decrease in the price of goods and services 
  • This is the opposite of inflation, where there is not enough deand so companies reduce there prices
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Businesses and the Economic Environment 2

  • Interest is the price paid for borrowing money
  • A fall in the interest rate increases businesses levels of activity as it is cheaper for them to borrow money to invest. 
  • A rise in interest rates makes firms decrease their activity because it is more expencive to borrow money to invest
  • Exchange rate is the value of  one currency in terms of another curency 
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