Analyse the risks to AC of the economic forecasts in [Appendix 2].

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. Knowledge: Risks/threats – external factors that impact business negatively
2. Knowledge: Definitions of terms from Appendix 2
3. Knowledge: Economic growth – rate of change of GDP/economic output
4. Knowledge: Inflation - increase in the general price level
5. Knowledge: Unemployment – proportion of labour force without work
6. Knowledge: Interest rate - cost of borrowing / reward for saving
7. Application: Use of information from the appendix and what this may mean for AC
8. Application: Reduction, 2.5% points, in forecast rate of economic growth but still positive
9. Application: Increase in inflation; 3% points
10. Application: Reduction in unemployment; 2% points
11. Application: Increase in interest rate of 3% points
12. Application: No forecast change in exchange rate
13. Application: Linking change in economic data to relevant impacts on AC e.g. interest rates and plan to borrow $7m, rising incomes / falling unemployment and demand for chocolate, inflation and costs of raw materials
14. Analysis: Reasoned chain of argument. e.g. economic growth is set to slow (not become negative) therefore incomes may not be rising as fast. This may mean a slowdown in the growth in demand for luxuries, such as chocolate products.
15. Analysis: Inflation set to rise. This could result in an increase in costs for AC e.g. cost of cocoa beans.
16. Analysis: Inflation could reduce the spending power of consumers resulting in less demand for chocolate.
17. Analysis: Unemployment set to fall, risk is that AC may need to pay higher wages and therefore impact on costs and pricing and therefore demand.
18. Analysis: Increase rates set to rise. This will increase the cost of borrowing and therefore impact AC's investment decisions such as the modernisation of the factory.