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Illustrate the impact of the following economic variables on Irish businesses: Interest rates Inflation rates Employment - Leaving Cert Business - Question 2(A) - 2021
Question 2(A)
Illustrate the impact of the following economic variables on Irish businesses: Interest rates Inflation rates Employment
Worked Solution & Example Answer:Illustrate the impact of the following economic variables on Irish businesses: Interest rates Inflation rates Employment - Leaving Cert Business - Question 2(A) - 2021
Step 1
Interest rates
Answer
Interest rates refer to the cost of borrowing capital. The interest charged on loans and borrowings from financial institutions directly affects businesses.
For example, a decrease in interest rates leads to lower consumer borrowing costs. Consumers can borrow more easily for purchasing houses, cars, and furniture, which translates into higher sales for Irish businesses. Therefore, lower interest rates can positively impact Irish businesses by increasing consumer spending.
Step 2
Inflation rates
Answer
Inflation rates indicate the average level of prices over time. A rise in inflation increases the costs for businesses as the prices of goods and services rise.
If inflation is low, the cost increases are manageable, positively influencing a business's operational costs. However, if inflation rises significantly, it can lead to higher operational costs for running expenses and raw materials, which can negatively impact profit margins of Irish businesses.
Step 3
Employment
Answer
Employment reflects the percentage of the labor force engaged in paid work. A decrease in employment levels typically means lesser income for households, leading to reduced consumer spending.
This decrease in consumer spending ultimately impacts Irish businesses negatively, as lower income results in lesser business for goods and services. Therefore, higher employment levels are beneficial for the strength of Irish businesses.