Essay 04 Economic

Submitted By Jamarr5242
Words: 832
Pages: 4

Economic Factors
Factors
Businesses are affected by the economy
An economy describes how a country spends its money
This is determined by 5 factors
Economic
Economic
Growth
Growth
Exchange
Exchange
Rates
Rates

Inflation
Inflation
Economic
Economic
Factors
Factors

Balance
Balanceof
of
Payments
Payments

Unemployment
Unemployment

© Business Studies Online: Slide 1

Economic Growth
Growth
This measures how much extra an economy has produced this year compared to last year
The total amount produced in an economy is called: ross omestic roduct This means the total value of products produced within the UK
© Business Studies Online: Slide 2

The Business Cycle
Cycle

Income

The growth of an economy will vary, but generally increases This is called the Business Cycle, and can be shown as:

Trend is increasing growth
Boom
Recession

Time
© Business Studies Online: Slide 3

Inflation
Inflation
Inflation is a general and sustained increase in prices
In other words its when things get more expensive!

It is measured by looking at the price of a “basket” of goods bought by most people each month
It is quoted as a percentage annual figure
E.g. inflation of 5% means that on average things are 5% more expensive now than they were this time last year

The government will want inflation to be low in order to help businesses.
Can you explain why low inflation helps businesses?

© Business Studies Online: Slide 4

Why is High Inflation Bad?
Bad?
Inflation can cause a number of problems:
People try to save money, and so will spend less. This can create unemployment Higher prices means people are worse off
Costs will be higher, forcing prices up further.
If UK inflation is higher than elsewhere then UK companies will sell fewer goods abroad

© Business Studies Online: Slide 5

Unemployment
Unemployment
Where people who want a job cannot get one
It can occur for a number of reasons:
Frictional
People moving between jobs

Structural
Caused by major changes in the structure of the economy

Cyclical
Caused by changes in the business cycle

Technological
Caused by automation, where machines take the place of workers

Seasonal
Caused due to changes in the seasons, e.g. Alton Towers staff

© Business Studies Online: Slide 6

The Effects of Unemployment
Unemployment
Unemployment can have good and bad effects on businesses: Effects of Unemployment
Good
• More people looking for work • Business has greater choice when recruiting
• Will be able to pay lower wages

ü

Bad
• People have less money to spend
• Demand will fall
• Profits may fall

û
© Business Studies Online: Slide 7

The Balance of Payments
Payments
The balance of payments (BoP) measures the level of international trade that takes place.
It is calculated as:
Balance of
Payments

= Revenue from
Exports

-

Spending on
Imports

Where:
Exports are goods and services made in the UK but sold in foreign countries
Imports are goods and services made in foreign countries but sold in the UK

© Business Studies Online: Slide 8

Deficit or Surplus?
Surplus?
If more money is spent on our exports than we spend on imports then the BoP is in SURPLUS.
Exports > Imports = Surplus

If we spend more money on imports than we receive from exports the BoP is in DEFICIT.
Exports < Imports = Deficit

© Business Studies Online: Slide 9

The Effects of International Trade
Trade
International trade can create…