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Economic factor


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Economic factor

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  3. 3. Economic Factors Exchange Rates Balance of Payments UnemploymentUnemployment 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
  4. 4. Economic Growth This measures how much extra an economy has produced this year compared to last year The total amount produced in an economy is called: ross omestic roduct This means the total value of products produced within the UK
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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.
  12. 12. 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?
  13. 13. QUESTIONS