BMIS-Nov-2024-L1-Q2b- Economic Factors Influencing Business Opportunities and Threats

Economic factors that shape business opportunities or threats based on the PEST model.

Question

Explain THREE economic factors which determine the nature of opportunities or threats that organisations may face.

Answer

Economic growth rate – The growth rate of an economy is measured by Gross Domestic Product (GDP), indicating the health of the economy. A growing GDP presents opportunities for expansion, whereas a declining GDP signals recession, leading to reduced business activity.
Inflation – The general increase in the prices of goods and services. Moderate inflation can stimulate demand, but excessive inflation erodes purchasing power and harms business.
Interest rate – The cost of borrowing money. High interest rates increase operational costs, while lower rates may stimulate economic activity but affect businesses with debt obligations.