The Importance of Stability and How and How a Wide Range of Changes in the Economic Environment Can Impact Businesses
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The importance of stability and how and how a wide range of changes in the economic environment can impact businesses
Business people like stable economic conditions stability exists when businesses can make forecasts for the short and medium term about likely demands for their products in the near future stability involves being able to make deals secure in the knowledge that people supply to on credit will pay you back at the price agreed when you borrow money you expect repayments to be for the agreed amount
Impact of changes in the economic environment:
Growth: The opposite of recession is economic growth. Growth occurs when more goods are being produced and consumed and incomes are raising economic growth is associated with a ripple effect because people have more money to spend they will but more goods producers will make more goods they will hire more labour and invest in new machinery and equipment this leads to an increase in demands for firms producing machinery and equipment so they take on more labour.
Recession: recession occurs when people are involved in business becomes more cautious and: customers cut back on spending and start to save more and manufacturers and sellers cut back costs in general including firing workers. Inflation damages businesses because it creates uncertainty A rise in the rate of inflation might reflect a rise in the costs of materials may go up and the costs of fuel and energy may also rise rising costs eat into profits businesses then have a choice: keep prices low and see profits fall or raise prices and lose out to competitors
Levels of inflation: Inflation occurs when there is a general rise in the price of goods in the whole economy. Not every price will be rising but average prices will. In the UK, average prices are measured by the government using a measure known as the Consumer Price Index (CPI). Inflation damages business because it creates uncertainty. A rise in the rate of inflation might reflect a rise in the costs they have to pay: employees will want more wages, costs of materials may go up and the cost of fuel and energy may also rise. Rising costs eat into profit. Businesses then have a choice:
* keep prices constant and see profits fall
* raise prices and perhaps lose out to competitors.
Availability and cost of credit the cost of credit (borrowing money) is the rate of interest. It is expressed as a percentage (%). For example, if a business borrows £1,000 for a year at a five per cent interest rate, it would expect to pay back £1,050, as £50 is five per cent of £1,000. When interest rates rise, this will harm business profits (because it is an additional cost). If a business is already operating close