Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which factor is crucial for determining the level of business in an economy?

1. Consumer income levels

2. Exchange rate movement

3. The political stability of the market

4. Government regulations on pricing

The correct answer is: The political stability of the market

The political stability of a market plays a crucial role in determining the level of business in an economy. A stable political environment fosters investor confidence, which is necessary for both local and foreign investments. When businesses feel secure within a stable political framework, they are more likely to make long-term investments, expand operations, and create jobs. Political stability can also affect economic policies that directly influence business operations, such as taxation, regulation, and public spending. A stable government can implement consistent policies that support economic growth, whereas political instability may lead to uncertainty, resulting in reduced consumer spending, lower investment, and ultimately a decrease in business activity. While consumer income levels, exchange rate movements, and government regulations on pricing certainly impact the business environment, they often operate within the broader context established by the political climate. A stable political backdrop is essential for ensuring these other factors do not become sources of volatility, thus making it a foundational aspect of a thriving business landscape.