Theme 4 - Economic Growth

Question 1

The drawback of a recession - line of analysis

Answer 1

• falling demand for goods and services in an economy
• Falling production of goods and services in an economy
• Falling GDP
• Businesses reduce capacity by making staff redundant and selling non-current assets such as robots and factory space
• Increased unemployment
• Fall in average incomes
• Increased demand for inferior goods but falling demand for luxury and normal goods
• Fall in revenue OR Fall in tax revenue

Question 2

What is the potential long-term potential benefit of a recession

Answer 2

• Presents an opportunity
• If a business has high cash reserves it may be able to sustain losses
• caused by falling revenue
• During the time competitors (who have lower cash reserves) may go out of business
• Reducing PED in the market (long term)
• Due to lower buyer power as there will be fewer choice
• Can increase prices when the economy
• Increase in long-term sales revenue

Question 3

Benefit spread