H1.5 External Factors (PESTEC)

An increase in the (a)   rate causes borrowing costs to increase, giving people less money to spend.

An increase in (a)   means prices are generally rising, and so the cost of living is higher.

Which of these is NOT a consequence of high inflation?

• Supplies get more expensive

• Workers may expect higher wages

• Business will make more profit

• People have less disposable income

Answer explanation

Business will likely make less profit, as their supplies get more expensive and people have less money to spend.

A fall in (a)   tax will mean people pay less to the government from their salary. This means they will have money to spend.

(a)   fiscal policy aims to create economic growth through reduced taxation and increased government spending.

A rise in the (a)   rate makes a currency stronger, which makes foreign supplies cheaper. However, this makes your products more expensive for foreign consumers.

The number of people willing and able to work, but unable to find a job is know as the (a)   rate.

Which of the following is NOT true when unemployment is high?

• There is an increase in crime

• the government will save money

• people have less money to spend

• the business can pay lower wages

Answer explanation

The government will likely have to spend more in benefits.

Business can reduce wages as there is a greater supply of workers; more unemployment means more people earning no money; and lots of research equates high unemployment with increased crime.

(a)   factors are concerned with changing demographics of the population, changing tastes and beliefs.

(a)   policy prevents unfair mergers which would give a firm too much power, and prevents the use of destroyer/predatory pricing.