Chapter 18 Business Cycles

Question 1

Definition of business cycle and phases

Answer 1

The cyclical but irregular up and down movements in economic activity, which are measured by fluctuations in GDP

Phases:

Contraction: this occurs when an economy is experiencing negative real growth in its GDP

Recovery: This occurs when an economy starts to show positive real GDP growth again after a recession

Question 2

Relevance of the business cycles to the entrepreneur

Answer 2

Its important to base business decisions in business cycles:

The quantity of goods and services demanded will differ

The nature of goods and services demanded will differ

The the quality of goods and services will differ

The business opportunities will differ

Question 3

Reasons to incorporate business cycle forecasts in business plans

Answer 3

To anticipate changes in demand and supply of g/s so entrepreneur is caught unprepared for changes in business cycles

To realign capital overheads in such a way that scarcer capital resources could be used in such a way that the business survives while creditors are paid , so entrepreneurs decide whether to cut back on capital spending or increasing it to gain first mover advantage during the upturn that will follow

To make important inventory decisions
Decide the type, quantity and quality

To decide on the welfare of Human Resources in the face of a looming recession