Lesson 3.7.5
3.7.5 Analysing external environment: economic change Quiz: AQA Business, Unit 7
20 questions
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Lesson 3.7.5, Analysing external environment: economic change: 20 multiple choice questions for the AQA Business (7132), Unit 7: Analysing the strategic position of a business, written with Revision Ninja.
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The 20 questions
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What does gross domestic product (GDP) measure?
- The average wage paid to workers across all sectors of the economy in the same year
- The total value of goods and services produced within an economy over a period of time
- The total value of goods that a country exports to other countries in a given year
- The total amount of money that the government borrows from banks and other lenders each year
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What is inflation?
- A sustained rise in the general level of prices across an economy over time
- A rise in the price of a single product while all other prices in the economy remain unchanged
- A fall in the level of interest rates that the central bank sets for commercial banks each month
- An increase in the number of people employed in an economy over a given period of time
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What is the effect of a stronger pound on a UK firm that exports goods to the United States?
- Its exports become cheaper for American buyers, which usually increases the demand for them
- Its imports from the United States become cheaper, which always raises the firm's profit margin on sales
- Its exports become more expensive for American buyers, which may reduce demand for them
- Its exports are unaffected because exchange rates have no effect on the price of goods sold abroad
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What is fiscal policy?
- Central bank decisions on interest rates and the money supply to control inflation over time
- The rules that govern how companies report their financial performance to shareholders
- Decisions by a business about how much profit to retain in the firm and how much to pay out
- Government decisions on taxation and public spending to influence the economy
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What is the difference between monetary and fiscal policy?
- Monetary policy is set by the central bank via interest rates and money supply; fiscal policy is set by government via tax and spending
- Both policies are concerned only with the exchange rate and have no effect on spending or inflation
- Both policies are set by individual businesses to influence their own costs and prices in the market
- Monetary policy is controlled by government through tax and spending, whereas fiscal policy is set by the central bank
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Real GDP growth is approximately 3% when nominal GDP grows by 5% and inflation is 2%. Which statement is correct?
- Real growth is 5%, because inflation has no effect on the size of the economy in any year
- Real growth is about 7%, because inflation is added to nominal growth to show output
- Real growth is 2%, because real growth always equals the inflation rate for the same period
- Real growth is about 3%, because inflation is subtracted from nominal growth
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A product's price rises from 100 pounds to 104 pounds in one year. What is the rate of price inflation for this product?
- 40%
- 104%
- 0.4%
- 4%
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A UK firm pays 2,500 US dollars for imported parts when 1 pound equals 1.25 dollars. What is the cost in pounds?
- 1,250 pounds
- 2,000 pounds
- 2,500 pounds
- 3,125 pounds
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A business has a loan of 250,000 pounds at 4% annual interest. What is the annual interest cost before any repayment of the loan?
- 62,500 pounds
- 10,000 pounds
- 4,000 pounds
- 25,000 pounds
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Interest rates rise sharply. What is the most likely effect on a business that relies on consumer spending?
- Interest rates have no effect on consumer spending because consumers never borrow money to buy goods
- Borrowing costs rise and consumer spending may fall, so demand for the firm's products may weaken
- Consumer spending rises because higher interest rates make all goods cheaper for households to purchase
- Borrowing costs fall and consumer spending rises, so the firm's demand will automatically increase
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A weak pound makes imports more expensive. What is the most likely effect on a UK manufacturer that imports raw materials?
- Its input costs fall because a weak pound lowers the price of all raw materials for British firms
- Its input costs are unaffected because raw material prices never depend on the exchange rate
- Its input costs rise, which may squeeze margins unless it passes costs on through higher prices
- Its profit rises automatically because a weak pound reduces the wages paid to its employees
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Evaluate the use of economic data to inform a business's strategy.
- Economic data is only useful to governments and central banks, so businesses should ignore it entirely
- Data helps identify trends and risks, but it is backward-looking and must be interpreted in context before decisions are made
- Economic data is always accurate and predicts the future exactly, so managers need no other evidence to decide
- Economic data is irrelevant to business strategy because firms never respond to changes in the economy at all
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A recession reduces consumer demand. Which is the most likely response of a firm to protect its position?
- Raise prices sharply to recover lost sales, which will restore demand for the firm's products quickly
- Reduce costs and review its product range or prices to protect cash flow and market share
- Increase investment and expand capacity sharply during the downturn to meet the expected rise in demand
- Stop all marketing to save money, because demand will recover without any effort by the firm
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A government cuts corporation tax. What is the most likely effect on a company's investment decisions?
- Investment is discouraged because lower taxes always reduce demand for goods from domestic firms
- Retained profits fall because lower tax reduces the cash that firms have available for investment
- Retained profits rise after tax, which may encourage investment in new projects
- Investment decisions are unaffected because corporation tax has no effect on the cash flows of a business
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A government increases spending on infrastructure. What is the most likely effect on the economy and on businesses?
- Demand for all goods falls because government spending always reduces private spending in every sector
- Demand for construction and related goods may rise, which can boost output and business confidence
- Businesses are unaffected because infrastructure spending does not involve any firms or any workers
- Inflation falls automatically because government spending always reduces the general price level in the economy
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Which is the most likely effect of a global economic slowdown on a UK firm that exports most of its output?
- Overseas demand falls, which may reduce sales and put pressure on profits and capacity
- The firm's costs fall sharply because a slowdown always lowers the price of all inputs for every firm
- Overseas demand rises because consumers abroad have more time to shop when economies slow down
- The firm's exports are unaffected because global conditions only influence the domestic market in the UK
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Evaluate the impact of rising inflation on a business that holds large cash reserves.
- Inflation always increases the real value of cash, so holding large reserves is always the best policy
- Inflation makes cash reserves irrelevant because customers will always pay in full in advance for goods
- Inflation has no effect on cash because money is always worth the same amount in every period of time
- The real value of cash falls over time, so the firm may need to invest or hold assets that keep their value
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What is the difference between nominal and real values in economic data?
- Real values remove the effect of inflation, while nominal values are measured at current prices without any adjustment
- Real values are measured in current prices, while nominal values remove the effect of inflation from the data
- Nominal values are only used for exchange rates, while real values are used only for interest rates in the economy
- Real and nominal values are always identical because prices have no effect on the measurement of output
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Output rises from 200,000 units to 230,000 units in a year. What is the percentage growth in output?
- 30%
- 13%
- 230%
- 15%
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Which statement about the economic cycle is correct?
- Economies move through periods of growth and contraction, which affect demand, investment and business profit
- The economic cycle is fixed in length and cannot change, so firms can predict every downturn accurately
- Economies only grow and never contract, so firms can plan for constant increases in demand each year
- The economic cycle only affects the public sector and has no direct influence on private businesses at all
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