Topic Summaries

Economic climate

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GCSE > Business > AQA > GCSE Business Topic Summaries > Influences on businesses > Economic climate
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Formula sheet

The economic climate includes factors like inflation, interest rates, unemployment, and changes in consumer income. A strong economy leads to higher consumer spending, business growth, and job creation. A weak economy may cause reductions in demand, layoffs, or reduced investment.

Factor Impact on business
Unemployment High unemployment = lower disposable income → reduced demand for non-essentials
Consumer income Higher incomes = more discretionary spending. Lower incomes = demand for value brands
Inflation Rising input costs (e.g. raw materials, wages). Businesses may raise prices or cut costs.
Interest rates High rates make borrowing more expensive (affects investment). Low rates encourage borrowing and spending
Taxation Higher taxes reduce consumer spending power and business profits. Lower taxes boost demand and investment.
Exchange rates A weaker pound makes UK exports cheaper abroad (good for exporters) but imports more expensive. A stronger pound has the opposite effect.

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