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Business Revision 2.5.1 - Coggle Diagram
Business Revision 2.5.1
Inflation
A general increase of price level over time. Rate of inflation show change in price between years. There are 2 main types of measuring inflation:
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RPI( retail price index): measurement of average basket of goods but includes house costs such as: council tax, rent, bills etc.
Effect of inflation on businesses are: -price can be passed onto consumers if price is inelastic, -increasing difficult to maintain competitiveness, -if firm exports, consumers of that firm may move to other abroad companies where prices aren't rising that fast.
Exchange rate
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Depreciation is when the value of one country's currency falls against another country's currency. E.G £1 = $0.97
Effect on businesses are: SPICED( strong pound, imports cheaper, exports dearer) where firms that import can import cheaper materials whereas firms that exports see less demand.
Another effect on businesses are: -WPIDEC( weak pound, imports dearer, exports cheaper) where firms that import will see less demand and firms that export shall receive more demand.
Interest rates
Price of money, cost of borrowing or reward for saving
Effect on businesses are: - increased costs as firms borrow large amounts of money or if there is a high interest rate
Another effect is it influences the level of demand from consumers, e.g if there is high interest rates, consumers will save rather than spend and if there are low interest rates, consumers prefer to either save in cash or spend.
Another effect on consumers is that consumers will have less disposable income. This means higher payments on other necessities and therefore a fall in demand for other products.
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Business cycle
4 stages of the business cycle are booms, depressions, recessions and growths.
Booms and growth are when the economy is doing well. Unemployment is low and there is increased disposable income for everyday people. There is high demand for goods and services. Consumers tend to buy more normal and luxury goods.
Depressions and recessions are when the economy is not doing so well. Unemployment is high and may continue to increase and there is little to no disposable income. Consumers may resort to purchasing inferior goods to save money
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