The Economic Climate Flashcards

All 9 cards in this deck

What is an interest rate?

The cost of borrowing money (and the reward for saving), given as a percentage of the amount borrowed or saved.

What is the most likely effect of a decrease in interest rates on borrowing?

Borrowing will be cheaper.

How does a rise in interest rates affect a business that relies on an overdraft and loans for finance?

e.g. a café with a £20 000 bank loan

Interest repayments rise, so costs increase and profit falls.
The café has less money left to spend on stock, staff or expansion.

True or false? When interest rates rise, demand for luxury and non-essential products rises.

False.
Borrowing costs more and saving is more attractive, so consumer spending and demand for luxuries fall.

Why might a rise in unemployment reduce a business's sales?

Unemployment reduces consumers' disposable income, so sales of new and expensive products fall and consumers buy cheaper or used alternatives.

How does a fall in unemployment (high levels of employment) affect a business's recruitment and wage costs?

Fewer people are looking for work, so skilled labour is harder to recruit and wages must rise to attract and keep staff.

What are the steps to describe what happened to a figure shown in a graph or chart?

e.g. global car sales 2019–2021

1. State the direction of change: sales have fallen.
2. Use data from the figure accurately: from 5.9 million to 4.5 million, a fall of 1.4m.

Give two ways a business could respond to falling consumer spending in an economic downturn.

Reduce production to match lower sales, and cut prices or promote cheaper/value products.
It may also delay investment and expansion plans.

How does a fall in interest rates affect a business's spending and investment decisions?
e.g. a bakery deciding whether to borrow £50 000 for a new oven

Borrowing becomes cheaper, so the business is more likely to invest and expand — the bakery takes the loan and buys the new oven.