Which two of the following could be the effects on small businesses if interest rates were to rise significantly?
Select two answers - Edexcel - GCSE Business - Question 10 - 2016 - Paper 1
Question 10
Which two of the following could be the effects on small businesses if interest rates were to rise significantly?
Select two answers.
A. Improved net cash flow
B. ... show full transcript
Worked Solution & Example Answer:Which two of the following could be the effects on small businesses if interest rates were to rise significantly?
Select two answers - Edexcel - GCSE Business - Question 10 - 2016 - Paper 1
Step 1
B. Reduced consumer demand
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Answer
As interest rates rise, borrowing costs increase, leading to higher costs for consumers. This can discourage spending as loans become more expensive, resulting in reduced consumer demand for goods and services offered by small businesses.
Step 2
E. The risk of insolvency is greater
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Answer
Higher interest rates can lead to increased financial pressure on small businesses, especially if they rely on borrowing. Increased costs and diminished cash flow can raise the likelihood of insolvency as businesses struggle to meet their financial obligations.
