Submitted to:

ECONOMIC FACTOR

Submitted by:

MAHA RAFIQUEHIRA AKHTER

Economic Factors

Exchange Rates

Balance of Payments

Unemployment

Unemployment

Inflation

Economic Growth

Businesses are affected by the economy

An economy describes how a country spends its

money This is determined by 5 factors

Economic Growth

Economic Factors

Economic Factors

Exchange Rates

Balance of Payments

Inflation

Economic Growth

This measures how much extra an economy has produced this year compared to last yearThe total amount produced in an economy is called:

ross

omesti

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roduct

This means the total value of products produced within the UK

The growth of an economy will vary, but generally  increases  This is called the Business Cycle, and can be shown as: 

  

The Business Cycle 

Income 

Recession

Trend is  increasing growth

Boom/peek

Inflation 

Inflation is a general and sustained increase in prices

Inflation is a phenomenon that occurs when there is too much supply of money in the economy that is not supported by the output of goods and services

Frictional 

People moving between jobs Structural 

Caused by major changes in the structure of the economy Cyclical  Technological 

Caused by automation, where machines take the place of workers

Caused by changes in the business cycle

Seasonal  Caused due to changes in the seasons, e.g. Alton Towers staff

Where people who want a job cannot get one  It can occur for a number of reasons:

Unemployment 

s

Unemployment can have good and bad effects on  businesses:

More people looking for  work  • Business has greater  choice when recruiting  • Will be able to pay  lower wages 

People have less  money to spend  • Demand will fall  • Profits may fall 

Good Bad

Effects of Unemployment

Effects of Unemployment

Balance of = Revenue from - Spending on Payments Exports Imports

The balance of payments (BoP) measures the level of  international trade that takes place.  It is calculated as:

Where: Exports are goods and services made in the UK but sold in  Foreign countries  Imports are goods and services made in foreign countries but 

sold in the UK 

The Balance of Payments 

Exports > Imports = Surplus 

Exports < Imports = Deficit

If more money is spent on our exports than we  spend on imports then the BoP is in SURPLUS.

If we spend more money on imports than we  receive from exports the BoP is in  DEFICIT

Deficit or Surplus

Exchange Rates

The exchange rate is:   

"The price of one currency expressed In terms of another currency"

When a company buys certain goods from a US-based organization, it will have to convert its currency into US dollars for making the payment. If the currency of the buyer is stronger than the US dollar, it will be beneficial for the company. However, if it is weak, the company will have to shell out more money.

Like most things, the value of a currency depends upon:  The number of people who want to buy it (DEMAND)  The number of people who want to sell it (SUPPLY)

Changes in the  exchange rate can 

have very big  effects upon  businesses: 

PRICE = £20,000 PRICE = $30,000 

New Exchange Rate  £1 = $2  British car sold in USA for:  $40,000 (£20,000 x 2)  American car sold in UK for:  £15,000 ($30,000 ÷ 2) 

Original Exchange Rate  £1 = $1.50  British car sold in USA for:  $30,000 (£20,000 x 1.5)  American car sold in UK for:  £20,000 ($30,000 ÷ 1.5)

What Determines Exchange Rates?  

QUESTIONS