2.5 External Influences

What does a rise in the Consumer Prices Index (CPI) typically indicate?

• Decrease in GDP

• Increase in unemployment

• Increase in inflation

• Increase in exports

How does a depreciation of the domestic currency affect exports?

• Makes them more expensive abroad

• Reduces the demand for exports

• Makes them cheaper for foreign buyers

• Has no impact

What is most likely to happen to consumer spending if interest rates rise?

• Spending increases

• Consumers borrow more

• Spending decreases

• No change in spending

Which of the following is a potential effect of increased government spending?

• Reduced demand

• Increased economic activity

• Higher interest rates

• Decreased GDP

In which phase of the business cycle is economic growth typically the highest?

• Recession

• Boom

• Recovery

• Slump

How can economic uncertainty affect business investment?

• Encourages expansion

• Has no effect

• Often causes delays in investment decisions

• Increases consumer spending

Which of the following is NOT a likely result of high inflation for a business?

• Increased wage demands

• Stable prices

• Rising costs

• Reduced consumer purchasing power

If the pound appreciates in value, what is the likely effect on imports?

• Imports become more expensive

• Imports decrease

• Imports become cheaper

• Import prices remain unchanged

What is one purpose of taxation for governments?

• Increase inflation

• Discourage savings

• Fund public services

• Reduce GDP

Which part of the business cycle typically follows a recession?

• Boom

• Slump

• Recovery

• Peak