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

  1. 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

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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%

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. Output rises from 200,000 units to 230,000 units in a year. What is the percentage growth in output?

    • 30%
    • 13%
    • 230%
    • 15%

  20. 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

All AQA Business quizzes