The economic climate

Overview

Consumer and disposable income, how rising and falling incomes affect different businesses, unemployment, recession, interest rates and inflation, and a worked fall in sales.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is meant by the economic climate?

   Model answer

   The economic climate is the general state of the economy, including how much people earn and spend. The economic climate shows whether the economy is growing or shrinking.

2. 2

   What is consumer income, and what is disposable income?

   Model answer

   Consumer income is the money people receive from wages, pensions and benefits. Disposable income is what is left to spend after tax has been deducted.

3. 3

   How do rising consumer incomes affect businesses?

   Model answer

   Customers have more to spend, so demand for most products rises. Sales and profits increase, and businesses may expand and hire staff.

4. 4

   How do falling consumer incomes affect businesses?

   Model answer

   Customers cut back spending, especially on luxuries and non-essential items. Sales fall, and businesses may cut prices, costs or staff.

5. 5

   Why are businesses selling luxury products hit hardest when incomes fall?

   Model answer

   Customers cut spending on things they can do without, such as holidays, meals out and designer goods. Demand for essentials such as food and energy changes much less.

6. 6

   Why might a discount retailer do well when consumer incomes fall?

   Model answer

   Customers switch from expensive brands to cheaper alternatives to save money. Budget supermarkets and discount stores gain customers from dearer rivals.

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