1.5.4a Unemployment, consumer income and inflation Quiz: Pearson Edexcel Business, Unit 5

The 20 questions

1. What happens to consumer spending when unemployment rises?

   • Consumer spending usually falls, because fewer people have income to spend
   • Consumer spending is unaffected, because people always have the same income
   • Consumer spending rises, because unemployed people spend more on luxuries
   • Consumer spending rises, because people save less money when jobs are scarce

2. A rise in consumer income is most likely to benefit which type of business?

   • Businesses in the same sector as the government, as they are protected by law
   • Businesses selling goods only on credit, as customers avoid paying cash
   • Businesses selling luxury goods, as customers have more money to spend
   • Businesses selling basic goods only, as customers buy less when they have more money

3. What is inflation?

   • A general rise in the price level of goods and services over time
   • A rise in the number of businesses set up each year across the country
   • A fall in the number of jobs available in the economy as a whole
   • A rise in the value of the currency against other currencies on the market

4. How might inflation affect a business's costs?

   • It has no effect on costs, because only the prices charged by firms change
   • It can increase the cost of raw materials and wages, which squeezes profit
   • It always reduces the cost of raw materials, which increases profit margins
   • It removes the need to pay wages to staff, since prices rise to cover them

5. Which of these is most likely to happen to a business in a period of high unemployment?

   • It will see sales increase sharply as customers spend more freely
   • It will find it impossible to recruit any staff at all
   • It will be automatically exempt from paying tax on its profits
   • It may find it easier to recruit staff, but customers may spend less

6. A business sells luxury holidays. Which economic change would most likely hurt its sales?

   • A fall in interest rates that makes borrowing cheaper for families
   • A rise in the number of people who want to take holidays abroad
   • A fall in consumer income as households have less spare money
   • A rise in consumer income that gives households more disposable income

7. What is the effect of a recession on a business selling basic goods such as bread?

   • The effect is always a complete loss of all sales for the business
   • The effect is larger than for luxury goods, because people buy bread only in good times
   • The effect is that the business is no longer allowed to sell bread
   • The effect is usually smaller than for luxury goods, because basic goods are still needed

8. Which economic factor is most likely to cause a business's costs to rise?

   • A fall in unemployment that reduces the number of workers available
   • Inflation in the prices of the materials it buys
   • A fall in consumer income that reduces the demand for its products
   • A fall in the price of raw materials on world markets

9. What happens to a business when consumer income falls?

   • Demand is unaffected, since consumers always buy the same amount
   • Demand may fall, particularly for goods that are non-essential
   • Demand moves to businesses in other countries automatically
   • Demand always rises, because consumers try to buy more goods to cheer themselves up

10. Which of these shows a link between unemployment and consumer spending?

    • When more people are out of work, consumer spending is unaffected because wages are paid by the government
    • When more people are out of work, businesses automatically hire more staff
    • When more people are out of work, household income falls and spending is reduced
    • When more people are out of work, consumer spending rises because jobseekers buy new clothes

11. A business finds its customers are cutting back on non-essential spending. Which business is most likely to be affected?

    • A supermarket selling everyday food items
    • A pharmacy selling prescription medicines
    • A restaurant selling expensive meals
    • A utility company supplying gas and electricity

12. Why might a rise in inflation be a problem for consumers?

    • Their money buys fewer goods and services than before
    • Their wages automatically rise to match the price increases
    • Their money buys more goods and services than before
    • Their savings are always protected against any rise in prices

13. Which of these is a possible business response to a fall in consumer income?

    • Ignoring the change because it always reverses without any action from the firm
    • Stopping all marketing because customers have less money to spend this year
    • Offering lower-priced versions of its products to keep customers buying
    • Raising prices sharply to make up for lost income from its existing customers

14. How does a rise in unemployment affect a business's labour costs?

    • It forces businesses to pay workers in goods rather than money for their labour
    • It always raises wages, because workers become scarce during an economic downturn
    • It has no effect on labour costs, because wages are fixed by law at a set level
    • It may allow the business to pay lower wages because more people are looking for jobs

15. Which of these is a likely effect of rising inflation on a business's pricing?

    • It may need to raise its prices to protect its profit margin
    • It must stop selling its products altogether while prices remain high
    • It must cut its prices to match the rise in its costs of production
    • It must keep its prices fixed by law regardless of how its costs change

16. A business's sales fall as customers spend less. What is the most likely first response?

    • Close all marketing activities permanently to save money for the business
    • Ask the government to increase unemployment to raise demand for its products
    • Review costs and look for ways to reduce spending while protecting sales
    • Increase costs to attract more customers who will spend more money in the shop

17. Which statement about unemployment and business is correct?

    • High unemployment means businesses can no longer employ anyone
    • High unemployment can reduce demand for goods, but it may also lower the cost of labour
    • High unemployment has no effect on business at all, because all firms are the same
    • High unemployment always increases demand for goods, because people need to spend more

18. Why do businesses monitor consumer income and inflation closely?

    • Because they determine the business's legal structure as a sole trader or company
    • Because changes in these factors affect demand and costs for the business
    • Because consumer income and inflation are only of interest to the government
    • Because they are required by law to publish inflation figures every day

19. Which of these is most likely to happen to demand when households receive a pay rise?

    • Demand for goods may rise, especially for non-essential items
    • Demand moves only to foreign businesses, leaving domestic firms with no sales
    • Demand is unaffected because pay rises never change spending
    • Demand for goods falls sharply because people save all extra income

20. What does a fall in unemployment usually mean for a business?

    • Fewer customers with income, so demand for goods falls
    • More customers with income, so demand for goods may rise
    • No change for businesses, as unemployment is unrelated to sales
    • Lower wages for all workers, so costs fall sharply

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