The effects of a fall in consumer wealth will be to reduce confidence and consumer spending; equity withdrawal will slow down sharply – this has been a significant contributor to increasing AD in UK). Therefore, falling house prices will cause a fall in AD and is likely to cause a recession. This occurred in 1991 and 1992 when falling house prices caused a recession 2. Reduce House Price Volatility To prevent a house price crash, in the future, the government needs to reduce house price volatility and speculation. For example, the government could try these policies Encourage Fixed Rate Mortgages – Makes mortgages less sensitive to interest rate changes.
In order to combat this deficit spending, taxes are increased to generate more revenue to pay off this spending. In response, consumers will spend less money and save more, thus causing a decrease in consumption and less money in the economy. Soon, there is a decrease in investment because products are not being sold. Prices drop, and the economy lowers into a recession.
It could therefore be said that an increase in the incomes of consumers could cause the bus operators revenue to decrease due to a fall in demand. This would indicate that the bus driver should close the service. Price elasticity of supply measures the proportionate response to changes in quantity supplied to a proportionate price change. A price elasticity of supply value of +1.15 means that the bus service has a more than proportionate response in supply to a change in price. The positive sign basically shows that higher prices will
With these factors taken into consideration, a decrease in consumer expenditure would be a direct causation to a lowering of both organisations activity. For example, due to recession unemployment will rise as the companies can’t afford to pay employees, and therefor people as a whole have less money to spend, and so donating to causes such as Oxfam would come more unlikely as there will be less money revolving them. This could cause a cut on their government funding as more money will need to be invested to government funding for those out of employment. With a low flow of money inward to the company it means they wont afford the expenditure necessary to fund projects for helping those, therefore lowering the activity of the charity. The same rule may apply to Arsenal FC.
Inflation affects how much UK branches have to raise or reduce the amount of pay each employee gets. This may lead to the company needed to let go of some employees. Indian branches also would need to alter pay, but wages in India can dramatically differ year to year depending on money flow. The recession decreases the companies in the UK wanting to lend money. Credit scores effect this drastically, if you have a bad credit score it is unlikely for UK Barclays to give you a loan or mortgage.
Identify two areas of government regulation and explain why this can be seen as a bad thing for businesses. Taxation may lead to businesses being driven out of the country due to high taxes and due to this businesses will move to countries with lower tax rates to maximise their profits. Building regulation stops the growth of businesses because without the approval of the government businesses’ cannot expand
Diplomatic events in surrounding countries. The following link is evidence of how Tesco is affected by political change http://www.telegraph.co.uk/finance/budget/8394379/Budget-2011-George-Osborne-set-for-8bn-windfall-from-bounce-in-tax-revenues-and-public-spending-cuts.html# This report explains how the government in 2011 decided to make spending cuts; this would reduce things like benefits and the link also describes how a decision to raise tax was made. These two factors of the report effect Tesco massively as a business because this means people have less money to spend due to cutting benefits and raising tax so Tesco would have to reduce sale prices, and try to reduce general costs because tax rising will affect them also, but would still have to keep employees paid at the same wage as it would be unfair to lower wages. Tesco have to make changes concerning themselves and customers as a business not their employees. Economic This link shows how the cost of healthy living has risen, so it cost more to make a meal than it would to buy the same readymade, but unhealthy version.
Therefore, if MPC and consumer confidence is at a low, consumers will spend less and save more therefore resulting in a decrease in total consumption levels. This consequently will result in an increase in taxation, as there is a decrease in the circular flow of income, meaning governments have to increase taxes in compensation for the lack of spending. Due to this taxation increase the level of real disposable income, or RDI, amongst consumers will decrease and therefore decreasing consumer
The LM Curve will see a shift to the left and decrease the value of "Y" if the IR is higher than the ER of the market. The GDP is increasing in value and there will be an increase of savings.. If the IR was below the equilibrium, the opposite of the previously stated would occur. The LM Curve would see a shift to the right, therefore increasing the value of "Y". The GDP value would then decrease, due to the move from Point A to C, and increase employment which would decrease savings.
When interest rates rise, the casino industry may go down because people will not be able to spend money for leisure activities. With high interest rates, consumers have less money to spend and less motivation to borrow (Northrop Grumman, 2009). On the other hand, when interest rates decline, businesses find it easier to finance expansion and people find it easier to spend money on leisure activities and nice automobiles. High interest rates depreciate the value of a dollar, giving consumers less purchasing power. This means consumers have to pay more for a car when