Business component 3- PESTLE (Economical)

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Explain how monetary policy affects businesses
The government set the Bank of England an inflation target (currently 2.0%) that they need to meet using the tool of interest rates
This keeps inflation rates under control allowing businesses to plan ahead with greater confidence which helps promote eco
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What are the impacts of an increase in interest rates on a business?
increase in inflation will result in an increase in costs (which will pass on to consumers)
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Effects of a rise in interest rates
Falling incomes
Less spending
lower investment
Higher unemployment
Appreciation of the £s value
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Effects of a fall in interest rates
Rising incomes
Increased spending
Higher Investment
Lower unemployment
Depreciation of the £s value
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Explain Economic growth
measured using Gross Domestic Product (GDP) which looks at the value of the goods and services produced within the UK economy over one year.
Characterised by both increasing levels of demand for goods and services and a rise in the productive capacity of
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Explain the Business cycle
The business cycle is a measurement of economic growth over time. It has 4 distinct phases: boom, recession, recovery, and slump.

Economic output (GDP) does not increase in a linear manner but instead, we see a rise and fall in all types of business acti
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What is the impact on different businesses of the economy being in a recession?
Booms do not last forever and eventually, both consumer and business confidence levels start to decline.
The Bank of England is likely to raise interest rates to help ease inflationary pressures and this adds to a firm’s costs and sees consumer demand fal
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What is the impact on different businesses of the economy being in a boom?
A boom is characterised by a period of very strong economic growth and high levels of business and consumer confidence.
Firms are investing heavily to try and satisfy high levels of consumer demand and this, in turn, creates jobs and increases living stan
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What are exchange rates?
Exchange rates are the price of one currency expressed in terms of another.
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What are the impacts of fluctuating exchange rates on a business?
When the value of the £ falls in relation to another currency this is called depreciation.

A rise in demand will lead to a higher value for the £. This rise is called appreciation.
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When do businesses benefit from the stronger pound?
For importation of goods from other countries as stronger pound would reduce costs for the importer. Therefore can increase profit for when they resell the items.
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Other cards in this set

Card 2

Front

What are the impacts of an increase in interest rates on a business?

Back

increase in inflation will result in an increase in costs (which will pass on to consumers)

Card 3

Front

Effects of a rise in interest rates

Back

Preview of the front of card 3

Card 4

Front

Effects of a fall in interest rates

Back

Preview of the front of card 4

Card 5

Front

Explain Economic growth

Back

Preview of the front of card 5
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