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Must be able to describe what an economic environment is.
Should be able explain how different economic environments impact on businesses.
Could be able to compare and evaluate the challenges to selected business activities.
Literacy – be able to spell key terms.
LO3 - Assessment Criteria
P5 – Describe the influence of two contrasting economic environments on business activities within a selected organization.
M2 - Analyse the impact of changes in demand and supply on a selected business.
D2 - Evaluate to what extent a selected business is likely to be affected by changes in the economic environment.
The business environment consists of a range of major influences that are outside a business. These include political, social and legal changes that affect business. However, most business people will tell you that it is changes in economic factors that they fear most because they can have such a dramatic effect, as witnessed by the global economic crisis of 2008-09.
The economy is made up of millions of individual decision makers who buy and sell goods, borrow and lend money, and raise taxes and change interest rates. From the business point of view, the most important of these decision makers are:
I supply goods to other businesses and to consumers
I buy goods and usually look for value for money.
What is inflation and when does it occur?
Bankers and other lenders
I lend money to businesses and to households
I set taxes and also decide how much money different parts of government should be spending
The Monetary Policy Committee
We decide on the levels of interest rates in the country
Importance of stability
Business people like stable economic conditions. Stability exists when business people can make forecasts for the short and medium term about likely demand for their products in the near future. Stability involves being able to make deals secure in the knowledge that people you supply to on credit will pay you back at the price agreed. When you borrow money, you expect the repayments to be for the agreed amount (this occurs between countries).
Research the following terms:
Ripple effect (associated with growth)
Changes in government policy
The government has a major responsibility for managing the economy of a country. Good management should ensure that:
there is stability and growth
inflation is low
there is available credit and low interest rates
businesses have access to suitable supplies of labour.
The main tools that the government uses to manage the economy are taxation and spending. Two ways this is done are:
This is when the government can change the amount of money available. For example, in 2009 the Bank of England (working for the government) increased the amount of money in Britain. This is referred to as quantitative easing. The government provided more money to banks to encourage them to lend to businesses.
Please see the group work for more information.
This involves the government altering its taxes and spending in light of what is happening in the economy. For example, in a recession the government can reduce business taxes and other taxes to make it easier for businesses to make a profit or reduce business losses. It can give businesses more time to pay their tax bills. The government can also spend more in a time of recession. In 2009 this spending involved pumping a lot of government money into banks to encourage them to keep lending.
For more information, see the group presentations.
Begin P5 task..