economic influences - business cycle

Question 1

what is the business cycle?

Answer 1

• The natural rise and fall of the size of the economy that occurs over time
• The size of an economy is measured by Gross Domestic Product = the value of goods and services produced in the economy
• Helps us measures economic growth
• Confidence is key in an economy – for spending and investment

Question 2

what is a boom and what are the characteristics?

Answer 2

Economy starts to pick up after a period of decline

• Rising investment
• Higher wages
• Higher consumer spending
• unemployment is lower
• business confidence
• profit/investment

Question 3

what is recovery and what are the characteristics?

Answer 3

• improvement
• consumers begin to increase spending as confidence increases
• business confidence increses = increase investment
• employment starts to increase

Question 4

what is a recession and what are the characteristics?

Answer 4

Output starts to fall, growth declines
*	High costs = low investment
*	Lost confidence – low spending
*	Unemployment increases
*	Production declines as demand falls

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Question 5

what is a slump and what are the characteristics?

Answer 5

Prolonged period of economic decline = bottom of cycle 
* prices may start falling 
*	Very low consumer spending
*	Businesses fail
*	High levels of unemployment
* 

Question 6

impacts of the business cycle

Answer 6

• In an expansion, businesses who provide a more expensive/luxury product do better
– Higher disposable income – goods with a positive YED purchased
• In a recession, businesses who provide a cheaper product do better
– Lower incomes – goods with a negative YED (inferior) purchased
• Hence the growth of discount stores / discounted products in recent years