Flashcards in External Influences Deck (84)
what is an interest rate?
the cost of borrowing money and the reward of saving measured as a percentage
who sets interest rates/
the monetary policy committee at the Bank of England
when interest rates are reduced, what are people more likely to do and why?
to spend as it becomes cheaper to buy on credit and loan
when interest rates, increase people are more likely to do what?
what is the current interest rate?
a change in interest rates can affect a business, what does this effect depend on?
the amount the business has borrowed and on what terms, e.g. how long
whether the business operates in a market which is dependent on consumer spending
how can interest rates affect consumer demand?
consumers may chose to spend or save more
demand for necessities will be the same but for luxury goods, it may change.
if interest rates increase, why will this increase the demand for sterling and hence reduce the supply?
because people from other countries will want to put their money in our banks and so there will be a inflow of capital and so a increase in demand
why effect does an increase in demand for the sterling have on exchange rates?
it causes them to go up
a stronger currency will cause exports to be more what and imports to be more what?
exports will be more expensive and imports will be cheaper
how will high interest rates effect inflation?
people will have less disposable income so will not be spending and so inflation will fall because growth of the economy will fall.
how will high interest rates affect unemployment?
people will be saving and so wont be spending and businesses will suffer and they may not be able to afford certain things e.g. staff and so some will have to be made redundant and so unemployment rises.
what 3 things can a business do if interest rates rise?
cost cutting exercises
what is an exchange rate?
the value of one currency in terms of another
if demand for the pound increase...?
more uk products demanded
interest rates increased
if the value of the pound looks like it will increase
when do we want to sell our pounds?
when buying from other countries
when exchanging for holiday currency
to save in overseas bank accounts
when overseas investors think the pound will fall
why do exchange rates matter?
imports and exports
affects firms profits
how does exchange rates affects firms profits?
smaller profit margin
a fall in exchange rates is good for who and why and bad for who and why?
good for businesses who export because countries will see our products for cheaper and so more goods sold.
bad for businesses who import because they will have to pay more for the same amount of products
high exports but low imports benefit from ......... of the pound?
high exports but low imports suffer from ......... of the pound and why?
appreciation because less people will buy from you because its more expensive
exporters prefer a what kind of pound and why?
weaker because more will buy
importers prefer a what kind of pound and why?
stronger because imports become cheaper
what are 3 advantages to the UK being in the EU?
export and import goods with no tariffs, quotas or other restrictions
creates opportunities in new markets
increased sales so economies of scale
what are 2 disadvantages to the UK being in the EU?
opens market to influx of cheaper foreign substitutes
why is the fact that members of the EU can move freely to other countries within the EU a good thing for businesses?
employees can move freely across to other countries for work and leisure
what are 2 advantages of movement of labour being so free in the EU?
can attract skilled workers e.g. doctors
can benefit from employing EU migrant workers in terms of costs and conditions
what are 2 disadvantages of movement of labour being so free in the EU?
migration of skilled workers out of the UK
hostility towards foreign workers