The Economy and Business
No business stands apart from the wider economy. See how unemployment, incomes, inflation, interest rates, taxes and the exchange rate change what a business can sell, spend and borrow.
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The economy shapes every business 🏦
No business stands on its own. The wider **economy** decides how much customers can spend, how much wages and materials cost, and how dear it is to borrow. This module works through the six economic factors: **unemployment**, **consumer income**, **inflation**, **interest rates**, **taxation** and the **exchange rate**.
The language of the economy 🔑
Four ideas run through this module:
Match each factor to its meaning 🔗
- Inflation
- Interest rate
- Exchange rate
- Unemployment
- The general rise in prices over time
- The cost of borrowing money
- How much one currency is worth in another
- The number of people without a job who want one
When interest rates change 📉
The interest rate is the cost of borrowing. When rates **rise**, loans and mortgages cost more, so businesses invest less and customers spend less, while savers are rewarded. When rates **fall**, borrowing is cheaper, so investment and spending tend to rise.
Rates and investment 🎯
When interest rates rise, what tends to happen to business investment?
- It tends to fall, because borrowing costs more
- It rises, because borrowing is cheaper
- It never changes with interest rates
- It always falls to zero
A strong or a weak pound ⚖️
The exchange rate changes who wins on trade.
What high inflation does ✅
Select the TWO effects of high inflation on a business.
- The cost of materials and wages rises
- Customers can buy less with the same money
- Borrowing automatically becomes cheaper
- Exports automatically increase
Match each change to its effect 💱
- Consumer incomes rise
- Taxes on income rise
- The pound gets weaker
- Unemployment rises
- Demand for goods tends to increase
- Consumers have less to spend
- Exporters tend to benefit
- It becomes easier to recruit workers
Follow the chain 🪜
An interactive activity.
The economy in words 🧩
A general rise in the level of prices is called _____. The cost of borrowing money is the _____ rate. When the pound is weak, _____ become cheaper for foreign buyers. Higher _____ on income leave consumers with less to spend. High _____ means fewer people have money to spend.
Spot the true statements 🖍️
An interactive activity.
A strong pound 💹
When the pound is strong, what happens to the price of UK exports for foreign buyers?
- They become more expensive
- They become cheaper
- They become free
- The price never changes
Respond to the economy 🧭
An interactive activity.
Explain the economy ✍️
An interactive activity.