The Impact of the Business Cycle Unit 27

Objectives Understand that economic activity tends to rise and fall. Understand that changes in the level of economic activity can have serious effects on small business

So you pay attention... Before we start, take 2 minutes to read the questions on your sheet, You will hear the answers to the through the lesson, Write the answers down.

Key Terms Economic Activity – the amount of buying and selling that takes place over a period of time. The Economy – the economic activity carried out by the people and businesses in a country. Economic Growth – rises in the rate of economic activity in an economy, calculated by the value of sales in an economy over a period of time. Recession – where economic growth is negative for 2 quarters. Business Cycle – fluctuations in the level of activity of a business, it can rise and fall.

Results Plus Not every business suffers in a recession, the government often increases its spending. This will lead to firms who deal with the government seeing their sales rise.

The Economy Everyday millions of people in the UK make decisions to buy goods and services, as do businesses. The simple act of buying a chocolate bar in a local shop is just one example of economic activity. Economic activity is the amount of buying and selling that takes place in a period of time.

The Economy The Economy is the term used to refer to all the people and businesses in a country that engage in buying and selling. Over time the level of Economic activity changes, sometimes the amount of buying and selling changes, they may decide they have money to spend when ‘times are good’ and may decide not to spend when ‘times are hard’. The Economy can rise and fall.

Task 1 Working in pairs, Complete the ‘match up exercise’ What has happened to the Economy at over the last 18 months – explain in detail.

Economic Growth Fifty years ago very few people owned their own cars, today there is almost 1 car for almost every two people! People have become better off, affording better food, electrical appliances, living longer because of better health care, the norm is for teenagers to stay in education until 18 and 1/3 rd go on to University THIS IS BECAUSE OF ECONOMIC GROWTH, averaging about 2.5% per year

Economic Growth Economic growth of 2.5% means that year on year the economy has produced 2.5% more goods and services than it did in the previous period. It is important to note that 1% growth is still growth, it may just be slower than 3.5% or 2.3% -1% means the Economy has recessed – gone in to a “recession”.

The Business Cycle On average, production and income have gone up by 2.5%over the last 50 years, in some years it has been more and in some less. The tendency for economies to different levels of economic activity is called the BUSINESS CYCLE

How businesses are affected by different stages in the Business Lifecycle The Economy, In some years there is an increase in the level of activity – BOOM, upturn In some years there is a decrease in the level of activity – BUST, downturn

How businesses are affected by different stages in the Business Lifecycle Boom In a period of ‘boom’ people feel confident about their jobs and may have had pay increases, they will be happy to spend more money, credit and borrowing go up, people have more spare income and will spend it....so other businesses do well and so on....

How businesses are affected by different stages in the Business Lifecycle Bust, In a period of ‘bust’ or downturn, people may have to spend more money to get the things they need and have less ‘disposable’ income. This means that businesses have less income, so workers have less money so spend less, and so the downturn begins!!

Boom or Bust Boom = good Bust = bad. When a economy goes into recession, less will be produced and sold, meaning less money in the economy, This may lead to people loosing their jobs, by being made redundant (not being sacked), and further downturns in the Economy.

Eventually, however the economy begins to recover and return to positive growth. In a recovery economic activity will begin to rise, people become more confident and begin to spend again and the Economy begins to rise.

The Business Cycle in Pictures Boom – this is when the economy is growing quickly. Demand in the economy is high and consumer spending grows.Business production increases to keep up with the demand. Downturn – growth starts to slow down. Consumer spending begins to fall and businesses invest less in capital equipment. There is uncertainty about the future of the economy. Recession – a continued downturn in economic activity can lead to a recession. Demand is low and firms may struggle to survive. Recovery – GDP starts to rise again as consumer spending increases and businesses produce more goods and services.

The Business Cycle in Pictures

Exam Tips

Practice Question The Economy is growing strongly, explain how this could affect a business? Answer this question – you have 10 minutes – yep, that’s all.

And think about this....

Snakes and Ladders. Snakes and ladders! Use good things and bad things about The Impact of the Business Cycle to make the game. We have already done this for the other topics in this unit

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Homework Homework for Unit 27