Economy

economy - system by which a country’s money and goods are produced and used

economy growing → positive economic climate

recession/ economy shrinks → negative economic climate

factors:

  • interest rates

  • exchange rates

  • inflation

  • unemployment

  • taxation

interest rate

  • amount charged by a lender for borrowing a sum of money. it is effectively the price that must be paid to borrow

high rate → reduce spending and encourage saving; and vice versa

inflation inc → price inc
so govn. increases interest rate

int rate increases = consumers save = sales dec = prices dec

int rate decreases = consumers spend = sales inc = prices inc

inc in int rates → higher monthly mortgage payment → reduced consumer spending and so they borrow less money
and vice versa

for business:

int rate increase → reduce investment; reduce production; look to save money and so cuts costs

higher int rate = saving inc = spending and borrowing dec

lower int rate = saving dec = spending and borrowing inc

—

Exchange rate:

Strong
Pound makes
Imports
Cheaper
Exports
Dearer

general and sustainable increase in price levels

reduced sales, as consumers have less purchasing power uncertainty resulting in lower investment

shrinkflation → size less

skimpflation → quality less

Unemployment

  • people who are able, available, willing and actively seeking work, but do not currently have a job

adv:

  • lots of potential employees

  • can be selective

  • can lower wages → many will work for less

disadv:

  • customers dont have money to spend

  • employed workers have to work harder + unmotivated → lack of job security

  • less profit

Taxation

  • financial charge imposed by a govn. to fund various public expenditures.

types:

  • income (direct)

  • corporation (direct)

  • VAT (indirect)

  • national insurance contribution (direct)

  • council (direct)

effect:

  • profits and costs: corporate tax on profit; profit and investments decrease

  • sales rev: income and VAT; spending dec, so sales dec

businesses

  • tax inc → cost inc → profit dec → cut cost or increase prices → unsatisfied customers

consumers

  • tax inc → disposable income dec → spending dec → sales dec → rev dec → profit dec

VAT paid by business