The Economic Climate On Business
Overview
A furniture shop has a good year and a bad year without changing anything at all. Same shop, same stock, same staff, same prices. In the good year customers walk in and buy a sofa on twelve months of credit. In the bad year the credit costs them more, their own jobs feel less secure, and the sofa can wait until next year. The shop did nothing differently. The economy did.
This topic is about the forces no business controls and every business is affected by. In this lesson you will learn what interest rates do to a business with an overdraft or a loan, and what they do to the customers who were going to buy from it. You will learn why a change in the level of employment pushes a business's costs and its revenue in opposite directions, and why the same fall in incomes almost destroys some businesses and barely touches others. The specification is clear that you do not need any economic theory about why interest rates change; what you need is to trace what happens to a particular business when they do.
Objectives
- Interest rates:
- how fluctuating interest rates can affect businesses that rely on overdrafts and loans for finance
- how fluctuating interest rates can affect consumer and business spending.
- Level of employment.
- Consumer spending.
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Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on The Economic Climate On Business. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which one of the following is most likely to happen if there is a large rise in unemployment? A. Demand for luxury goods will increase B. More people will be looking for work C. Wages will rise quickly D. Consumer spending will increase Answer: B
- Interest rates rise sharply. Which one of the following businesses is likely to be affected most? A. A bakery selling bread for cash B. A bus company charging single fares C. A car dealer whose customers buy on finance D. A newsagent selling newspapers Answer: C
- A business has a loan of 400,000 at a variable rate. The rate rises from 4 per cent to 7 per cent. By how much does its annual interest cost rise? A. 3,000 B. 12,000 C. 16,000 D. 28,000 Answer: B
- Which one of the following is a benefit to a business of a rise in unemployment? A. Consumer spending increases B. It becomes easier and cheaper to recruit staff C. Its customers can borrow more cheaply D. Its interest costs fall Answer: B
- Incomes in a country fall. Which one of the following businesses is most likely to see demand rise? A. A budget supermarket B. A jeweller C. A luxury hotel D. A new car showroom Answer: A
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Recommended Books
Further learning from open sources
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Textbook section
Macroeconomics: The Big Picture
How do economic growth, full employment, price stability, and inflation indicate a nation’s economic health?
"Introduction to Business: Macroeconomics: The Big Picture" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/introduction-business/pages/1-4-macroeconomics-the-big-picture. Access for free at https://openstax.org/books/introduction-business/pages/1-introduction
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Textbook section
The Federal Reserve System
How does the Federal Reserve manage the money supply?
"Introduction to Business: The Federal Reserve System" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/introduction-business/pages/15-2-the-federal-reserve-system. Access for free at https://openstax.org/books/introduction-business/pages/1-introduction
Published by other organisations under open licences, credited as they ask. Links open their websites.
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