Question 1: Explain how a rise in inflation could affect consumer spending and its impact on businesses.

Answer: An increase in inflation usually leads to higher prices for goods and services, which can reduce consumers' purchasing power. As a result, consumers may cut back on spending, leading to decreased sales for businesses. Businesses might also face higher costs for supplies and wages, affecting profitability.

Question 2: Describe how a recession could influence a small business’s decision to expand or invest in new equipment.

Answer: During a recession, consumer demand typically falls, and economic uncertainty increases. Small businesses may become hesitant to invest in expansion or new equipment due to fears of reduced sales and lower profits, preferring to conserve cash and minimize risks.

Question 3: Identify two ways a government’s decision to increase taxes might impact a business’s pricing strategy.

Answer: First, the business may increase its prices to cover higher tax costs, which could reduce competitiveness. Second, the business might absorb some of the tax increases to keep prices stable, potentially reducing profit margins.

Question 4: Explain what is meant by 'exchange rates' and how fluctuations can affect a business that imports goods from abroad.

Answer: Exchange rates refer to the value of one country's currency compared to another's. Fluctuations can make imported goods more expensive if the local currency weakens, increasing costs for businesses that rely on imports. Conversely, a stronger local currency can reduce import costs.

Question 5: Describe two potential effects of sustained high unemployment rates on local businesses.

Answer: High unemployment can lead to reduced consumer spending, negatively impacting sales. It may also result in a larger pool of available workers, which could lower wage costs and influence hiring decisions.

Question 6: Sketch a simple graph showing the relationship between economic growth and business investment. Label the axes and describe what the graph indicates.

Answer: The graph should have 'Economic Growth Rate' on the x-axis and 'Level of Business Investment' on the y-axis. The line should slope upwards, indicating that as economic growth increases, business investment tends to increase as well.

Question 7: Discuss how government policies aimed at controlling inflation can influence business operations.

Answer: Policies to control inflation, such as increasing interest rates, can make borrowing more expensive, potentially reducing business investment and expansion. They can also stabilize prices, helping businesses plan long-term, but may slow economic growth.

Question 8: Draw a simple diagram illustrating the effect of a decrease in consumer confidence on a business’s sales and stock levels. Label the key parts of your diagram.

Answer: The diagram should show a downward arrow representing declining consumer confidence leading to a decrease in sales, which then causes a reduction in stock levels. Label arrows and key points accordingly.

Question 9: Identify and explain two economic factors that could lead to increased costs for a manufacturing business.

Answer: One factor is rising raw material prices, which increase production costs. Another is increased wages due to minimum wage rises or labour shortages, raising operational expenses.

Question 10: Evaluate how changes in interest rates can influence a business’s decision to take out a loan for expansion.

Answer: Higher interest rates make borrowing more expensive, which may deter businesses from taking out loans for expansion. Conversely, lower interest rates reduce borrowing costs, encouraging expansion plans. The decision depends on the business’s financial situation and confidence in economic stability.