2.5.1

Question 1

Define a recession

Answer 1

A recession is when an economy experiences two or more consecutive quarters of negative economic growth.

Question 2

What businesses do well in a recession and why?

Answer 2

Inferior good businesses, due to increased demand for products.

This is because real income is low

Question 3

What businesses will do well in the Boom stage of the business cycle.

Answer 3

Luxury good businesses, due to higher demand as higher wages.

Question 4

Define or describe the business cycle.

Answer 4

A business cycle describes the fluctuations in an economy over a period of time,

Question 5

What are (3) characteristics of a recession?

Answer 5

Low CC
HIgh Government spending (welfare benefits)
HIgh unemployment

Question 6

What are (2) Characteristics of a Boom?

Answer 6

High employment
High CC

Question 7

What is inflation?

Answer 7

The sustained increase in general price level over time inside an economy.

Question 8

Inflation is measured, how?

Answer 8

Measured by the Consumer Price Index (CPI), where a ‘basket of goods’ total value is measured and compared to previous years.

Question 9

What are () impacts on Businesses because of inflation?

Answer 9

Increase in costs (Cost of production increase, workers and suppliers want more)
Can reduce demand as consumer real disposable income decreases
May need to pay negotiations for labour force

Question 10

What is Exchange rates?

Answer 10

Exchange rates is the value of a currency expressed in terms of another.

Question 11

Impact of appreciation of currency when a business is exporting goods abroad?

How could you tackle this?

Answer 11

Sales fall, due to prices increasing to foreign consumers

Lower prices but have lower profitability

Question 12

Impacts of depreciation when a business is exporting goods abroad?

Answer 12

Sales increase, due to cheaper prices for consumers

Question 13

Impact of appreciation of currency when a business is importing?

Answer 13

Cost of raw materials decrease, expands pool of suppliers

Could link this to decrease in supplier power

Question 14

Impacts of depreciation of currency when a business is importing?

Answer 14

Costs will rise, possibly have to purchase domestic materials/

Question 15

What does a change in Taxation do to business revenue?

Answer 15

If tax increase, then business revenue will fall
Could be due to less demand as real disposable income decreases
or
Cooperation tax increases

Question 16

What does a change in Taxation do to profits?

Answer 16

Increased VAT will increase the cost of products, in turn lowering demand

(Depends on PED)

Question 17

What happens if taxes increase on business decisions?

Answer 17

Less revenue, this may prevent expansion and might force business to focus on survival

Question 18

What is economic uncertainty?

Answer 18

Happens when it is difficult to predict the level of supply and demand.

Question 19

How may business prepare for economic uncertainties? (2)

Answer 19

Keep cash reserves and keeping informed