PESTLE economic question

Q1. Explain two ways in which inflation may affect a multinational business. (4 mark)

one way inflation may affect a multinational business is by increasing the production cost. As inflation increases, this will also increase the price of raw material, energy or wages. With this increases it will mean the business is making less revenue and therefore making less profit and decrease the profit margins of the business. Another way is it reducing demand for the business. with inflation, business aren’t the only one affected by inflation as it means that the consumer will have less disposable income aswell. This will decrease the demand for the product or service as people will not have the money. This will result in less sales which will lead to less revenue for the business and therefore decrease their overall profit'; negatively affect them.

Q2. Analyse how changes in interest rates could influence consumer spending in an economy. (6 marks)

interest rates are the financial reward of lending of money or the financial cost of borrowing money. With an increasing interest rates this will influence consumer spending as it will decrease it. This is because if consumers will have less of a disposable income as the high will also leads to a increase mortage and loan repayments. This means consumers have less money to spend on non-essential goods, leading to lower sales for the business. as a result, firms may experience reduced revenue and profit. Also well they may be more intending to save there money in order to gain more money back from there investment. This will means they would be a decrease in money in the economy having a negative effect.

However, with a falling interest rate this will increase the consumer spending as this will have more of disposable income. This is because borrowing is becoming cheaper and saving less attractive. This means they will spend more and therefore increasing demand and helping businesses increase reveune and profit. This will have a positive affect on the economy as a whole alwell as the business

Q3. A business operates in a country experiencing rising unemployment. assess how this economic change may affect: demand, costs and profitability. (8 marks)

With a rise in unemployment, this will negatively affect the demand for a business, due to less disposable income. As less people will have jobs, this means that they will have less money to spend of goods that aren’t needed. This will decrease the demand of the business as consumers are not buying the product or service. A rise in unemployment will also lead to an increase in cost for the business. This is because with job losses it means the business will need to pay redundancy payments to former employees. This will increase the costs and therefore lead to a decrease profit for the business. However, rising unemployment may reduce wage pressure, allowing firms to recruit workers at lower wage, reducing labour costs. Although it will demend on the type of business. Due to the rise in cost for the business and the decrease in demand, which lead to less sales revenue; unemployment will harm the businesses profitability. This is because the business will be making less of a profit and therefore this change will have a negative affect over the business

Overall, rising unemployment is likely to reduce profitability due to fall in demand. However, businesses selling essential goods may be less affected and benefit for lower labour costs.

Q1. Evaluate the impact of the business cycle, interest rate and exchange rates on toyota (12 marks)

plan:

business cycle: new car registraion was low during 2008 financial crash, due to recession- fail in demand, less profit. However, recent year recovery started to occur, increasing interest rates, growth, more demand, more revenue/profit. although, doesn’t show average price of vehicle. may be even with increase in car the price of vehicle is reduced, explain why profit still suffering

interest rates: since 2008 rates have been low, more spending, sales/revenue/profit should increase. however bc financial crisis was a rescess, lead to increase unemployment, lower income for consumer, less sale, less revenue/profit (this explains the fail in sale of new car, they don’t have the income to buy one.

exchange rate: unfavourable exchange rates led to profit falling by 21% from 2016-17. negtive impact on toyota no matter an increase in trade. However, after trump said there would get big tariffs on car build in mexico for US, so toyota production of vehicles should shift to us. this postively impact, as less exchange rate have to pay for US selling, increases profit and decrease cost