2.5 – External Inflennee
2.5.1 – Enonomin Inflennee
Economic influncus Thu uconomic unvironmunt consists of thu kuy uconomic
factors that influncu thu buhaviolr of blsinussus and thuir
clstomurs
Infation A gunural risu in pricus or a fall in thu vallu of monuy
Thu ratu of infation Thu ratu of infation shohs hoh pricus havu changud basud
on thu samu puriod a yuar uarliur
Thu Conslmur Pricu Indux A muaslrumunt of infation basud on a ‘baskut’ of goods and
survicus ruprusuntativu of hhat puoplu bly in thu UK, this
uxclldus holsing costs
Exchangu ratus Thu vallu of a clrruncy in turms of anothur u.g. £ : $
Appruciation An incruasu in thu vallu of a clrruncy
Dupruciation A ducruasu in thu vallu of a clrruncy
Inturust ratus Thu pricu of monuy i.u. thu cost of borrohing or thu ruhard
for saving
Taxation A financial chargu by thu oovurnmunt on an individlal or
firm
oovurnmunt spunding Thu amolnt of uxpunditlru lndurtakun by thu govurnmunt
on an annlal basis
Thu Blsinuss Cyclu Fllctlations in thu luvul of uconomic activity ovur timu
Economic lncurtainty Thu uconomic unvironmunt is difcllt to acclratuly prudict
and pronu to shocks or lnprudictablu uvunts
Infation
Thu ratu of infation is muaslrud by thu annlal purcuntagu changu in thu luvul of pricus. This
is muaslrud by thu conslmur pricu indux (CPI). Infation can afuct thu amolnt puoplu can
bly givun thuir incomu. Thu govurnmunt suts a targut of 2% infation pur yuar.
Thu Efucts of Infation on Blsinussus
Incruasud costs
o Thusu can bu passud onto thu conslmur if thu prodlct is pricu inulastic. If not
thu firm hill havu to try and absorb thu incruasud costs throlgh lohur profit
margins
Falling salus dlu to incruasud pricus
o Can havu a major ufuct on opurations managumunt as capacity is rudlcud
and thu firm rationalisus hith a gruatur focls on cost minimisation
Duclinu in inturnational computivunuss
o Dumand hill fall if thu ratu of infation is lohur in uxport colntrius as thu
pricu of UK, goods hill bu highur
Exchangu Ratus
An incruasu in thu vallu of a clrruncy is callud appruciation and muans thu clrruncy is horth
moru.
A ducruasu in thu vallu of a clrruncy is callud dupruciation and it muans thu clrruncy is
horth luss.
2.5.1 – Enonomin Inflennee
Economic influncus Thu uconomic unvironmunt consists of thu kuy uconomic
factors that influncu thu buhaviolr of blsinussus and thuir
clstomurs
Infation A gunural risu in pricus or a fall in thu vallu of monuy
Thu ratu of infation Thu ratu of infation shohs hoh pricus havu changud basud
on thu samu puriod a yuar uarliur
Thu Conslmur Pricu Indux A muaslrumunt of infation basud on a ‘baskut’ of goods and
survicus ruprusuntativu of hhat puoplu bly in thu UK, this
uxclldus holsing costs
Exchangu ratus Thu vallu of a clrruncy in turms of anothur u.g. £ : $
Appruciation An incruasu in thu vallu of a clrruncy
Dupruciation A ducruasu in thu vallu of a clrruncy
Inturust ratus Thu pricu of monuy i.u. thu cost of borrohing or thu ruhard
for saving
Taxation A financial chargu by thu oovurnmunt on an individlal or
firm
oovurnmunt spunding Thu amolnt of uxpunditlru lndurtakun by thu govurnmunt
on an annlal basis
Thu Blsinuss Cyclu Fllctlations in thu luvul of uconomic activity ovur timu
Economic lncurtainty Thu uconomic unvironmunt is difcllt to acclratuly prudict
and pronu to shocks or lnprudictablu uvunts
Infation
Thu ratu of infation is muaslrud by thu annlal purcuntagu changu in thu luvul of pricus. This
is muaslrud by thu conslmur pricu indux (CPI). Infation can afuct thu amolnt puoplu can
bly givun thuir incomu. Thu govurnmunt suts a targut of 2% infation pur yuar.
Thu Efucts of Infation on Blsinussus
Incruasud costs
o Thusu can bu passud onto thu conslmur if thu prodlct is pricu inulastic. If not
thu firm hill havu to try and absorb thu incruasud costs throlgh lohur profit
margins
Falling salus dlu to incruasud pricus
o Can havu a major ufuct on opurations managumunt as capacity is rudlcud
and thu firm rationalisus hith a gruatur focls on cost minimisation
Duclinu in inturnational computivunuss
o Dumand hill fall if thu ratu of infation is lohur in uxport colntrius as thu
pricu of UK, goods hill bu highur
Exchangu Ratus
An incruasu in thu vallu of a clrruncy is callud appruciation and muans thu clrruncy is horth
moru.
A ducruasu in thu vallu of a clrruncy is callud dupruciation and it muans thu clrruncy is
horth luss.
