exam 1

Question 1

Phases of the business cycle — all of the economies in the world go through fluctuations, experiencing upturns and downturns.

ECONOMIC CONDITIONS

P1

Answer 1

EXPANSION key features:
-increasing consumer spending
-business expectations increasingly optimistic
-increasing business investment
-sales and profits rising
-unemployment falling

CONTRACTION key features:
-decreasing consumer spending
-business expectations increasingly pessimistic
-decreasing business investment
-sales and profits falling
-unemployment rising

Question 1

Economic conditions and influences

Answer 1

-Economic conditions refer to the many influences that relate to economic activity in a country, region or the world and include interest rates, wages, unemployment, exchange rates and inflation.
-They influence a business’s capacity to compete and customers’ willingness and ability to spend.

Question 2

Phases of the business cycle — all of the economies in the world go through fluctuations, experiencing upturns and downturns.

ECONOMIC CONDITIONS

P2

Answer 2

PEAKS key features:
-wages and salaries at high levels
-business operating at full capacity
-sales and profits at highest levels
-low level of unemployment
(difficult to sustain)

TROUGHS key features:
-wages and salaries at low levels
-business operating at below full capacity
-sales and profits at lowest levels
-consumer spending at lowest levels
-high level of unemployment

Question 3

when the economy is in a downturn:
when the economy is booming:

Answer 3

DOWNTURN:
-it will most likely mean that customers are not spending as much.
-Reduced spending translates to reduced opportunities for business

BOOMING:
- lower levels of unemployment and rising incomes are likely to increase the overall level of spending in the economy.
-There are many opportunities for businesses to do well in this situation, and business owners may plan to expand as sales and profits increase.

Question 4

ECONOMIC CONDITIONS AND INFLUENCES

Answer 4

-Interest rates
-employment levels
-tax rates
-business and consumer confidence levels

Question 5

ECONOMIC CONDITIONS AND INFLUENCES
-interest rates

Answer 5

-An interest rate is the price charged or paid for the use of money

RISING INTEREST RATES:
-A high interest rate will reduce the likelihood of a business making a large profit, which will undoubtedly influence the business owner’s planning.
-Prospects for expanding or growing the business will also be reduced.

LOW INTEREST RATES:
-falling interest rates may result in business loans becoming more affordable.
-Consequently, a business owner may plan to expand their business under these circumstances.
-consumers have more money to spend after making repayments on their loans.
-This extra money to spend on goods and services generally results in increased sales and, hence, profitability for businesses.
-A business owner may plan to expand their business under these circumstances because of the potential for increasing profits.

Question 6

ECONOMIC CONDITIONS AND INFLUENCES
-employment levels

Answer 6

-Employment levels fluctuate with the phases of the business cycle.
-During an expansion, employment levels will typically rise while unemployment levels will fall.
- During an economic contraction, employment levels will fall and unemployment levels will rise.

effect on business planning:
-In times of economic expansion, businesses may find it difficult to hire suitable employees due to labour shortages. This is because most people are already employed.
- therefore businesses will have to pay higher wages to attract suitable staff or consider overseas employees as an alternative.
-This may mean that businesses have to change their plans or put some plans on hold until they find the employees that they need.

Question 7

ECONOMIC CONDITIONS AND INFLUENCES
-tax rates

Answer 7

-Taxes represent a cost for businesses.
-The tax rates on certain activities may affect the decisions that the business owner makes when planning the business.
-For example, an activity that offers tax deductions may prove to be an attractive option when in the planning stage.

Question 8

ECONOMIC CONDITIONS AND INFLUENCES
-Business and consumer confidence levels

Answer 8

-Business and consumer confidence levels refer to how businesses and customers are feeling about the economy.
- If a business owner is feeling positive about the future, or if they sense that consumer confidence is high, then this is likely to be reflected in the decisions that they make during the planning stages of a business.
- For example, if business and consumer confidence levels are high, it is possible that a business owner will plan to expand the business, take on more debt or employ more workers.