Question 1: Define 'inflation' and explain how it can affect the purchasing power of consumers.

Answer: Inflation is the general increase in prices across the economy over time. It reduces the purchasing power of consumers because their money buys fewer goods and services.

Question 2: Describe two ways a rise in interest rates could impact a small business.

Answer: A rise in interest rates can increase borrowing costs for a small business, making loans more expensive. It can also reduce consumer spending as people may save more and spend less, potentially decreasing sales.

Question 3: Explain what is meant by 'economic downturn' and how it might influence a retail business.

Answer: An economic downturn is a period of economic decline characterized by reduced consumer spending and higher unemployment. It can lead to lower sales and profits for a retail business as consumers cut back on spending.

Question 4: Identify two government policies that could help stimulate economic growth and describe their potential impact on businesses.

Answer: Tax cuts can increase consumers' disposable income, encouraging spending and investment by businesses. Increased government spending on infrastructure can create jobs and boost demand for goods and services.

Question 5: Sketch a simple diagram to illustrate how a rise in inflation might shift the demand curve for luxury goods.

Answer: A demand curve for luxury goods would shift leftward (decrease in demand) as inflation rises, indicating fewer consumers are willing or able to buy luxury items at previous prices.

Question 6: Discuss how exchange rate fluctuations can influence the costs for a UK business that imports goods from abroad.

Answer: If the pound weakens against other currencies, import costs increase, making imported goods more expensive. Conversely, if the pound strengthens, import costs decrease, potentially reducing expenses.

Question 7: Explain the term 'budget deficit' and how it might impact the overall economy and businesses.

Answer: A budget deficit occurs when a government spends more than it earns in revenue. It can lead to higher interest rates and inflation, which may increase costs for businesses and reduce consumer spending.

Question 8: Describe how a high level of unemployment in the economy can affect consumer spending and business sales.

Answer: High unemployment means fewer people have income, leading to reduced consumer spending. This can cause a decline in sales for businesses, especially those selling non-essential goods and services.

Question 9: Identify and explain two economic indicators that can help businesses predict future economic conditions.

Answer: GDP (Gross Domestic Product) growth rate indicates overall economic health; rising GDP suggests economic expansion. Unemployment rate shows job availability; falling unemployment suggests a strong economy, encouraging business investment and consumer spending.