Topic 4 - Economic consideration business studies unti 1 2.0 / 5 based on 1 rating ? Business StudiesAS Created by: Stuart KightleyCreated on: 01-04-12 14:58 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 1 of 2 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 2 of 2
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