Unit 7 Economic environment

GDP is...

• The value of a country's total output of goods and services over a period of time, normally one year.

• The value of a country's total input (factors of production) over a period of time, normally one year.

• The value of a country's tax revenue over a period of time, normally one year.

• The change in prices of goods and services over time, usually over one year.

High consumer demand which is greater than supply creating excess demand which leads to higher prices.

What is being described?

• Boom

• Recovery

• Recession

• Slump

A period of falling levels of consumer demand, output, profit, business and consumer confidence, low investment levels, spare capacity and rising unemployment. A fall in GDP for two consecutive quarters.

What is being described here?

• Recession

• Boom

• Recovery

• Slump

Most likely business strategy during a recession...

• Restructuring and delayering to reduce cost and minimise risks​

• Entrepreneurs take opportunity to start-up new businesses.​

• More investment in R&D.​

• Increase prices

What happens when there is an appreciation of the pound?

• The pound no longer buys as much foreign currency​

• Imports are more expensive, as more pounds need to be exchanged for the same amount of foreign currency​

• Exports are cheaper, as less foreign currency is required in exchange for domestic currency

• Imports are cheaper, as a pound can be exchanged for a greater amount of foreign currency

What strategic action might a business take in response to a depreciation of the pound?

• Business that require foreign imports may pass on cost increase to consumers via higher price​

• Businesses may switch to foreign suppliers

• British businesses may see a decrease in demand

• Exports are now more expensive so British businesses may focus on domestic consumers

Inflation is...

• A sustained increase in the average price level of an economy.​

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• A sudden increase in the price of a particular good or service.

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• An increase in the prices of one business.

• An increase in the cost of borrowing money.

A little inflation is a good thing. Why?​

• Sign of economic growth

• Sign that prices are rising faster than wages

• Sign that tax revenue will be lower

• Sign that demand is too high

Which of the following is an example of demand-pull inflation?

• Reduced interest rates leading to increased spending​

• Rise in raw material costs

• Increase in land rents​

• Higher indirect taxes e.g. VAT​

Which of the following strategies will NOT be undertaken by a business during a period of high inflation?

• Businesses may have to negotiate with employees over higher wages

• Higher costs passed on to consumers via higher price

• Businesses may have to work with trade unions to avoid industrial action

• Business invest in capital expenditure as interest rates will stay low