The Credit Crunch… Q. Why didn’t the little boy get any pocket money this week? A.Cos his mum’s gone to Iceland! Q. What’s the difference between an investment banker and a large pizza? A.A large pizza can feed a family of four Q. What’s the difference between an investment banker and a pigeon? A.A pigeon can leave a deposit on a ferrari Q. How do you define optimism? A. A banker who irons 5 shirts on a Sunday night

AS Business Economic Factors Affecting Business Start-Up

The Economic Context of Business All businesses are part of the economy, but rarely do they have a great deal of control over it. The way the economy works has a significant influence on business. Some of the main factors that affect a business include: · Economic Growth · The Business Cycle · Employment and unemployment · Inflation · Interest Rates · Exchange rates

Intro to the Economy The economy is made up of individuals, businesses and government. The economy has two parts: the private sector and the public sector. Every day there are individuals, businesses and governments engaged in economic activity. –What we mean by this is all the buying and selling that goes on every day. It might be something simple like going into a local shop on your way to school to buy a snack through to the government announcing plans to build a new hospital.

Intro continued…. Every act of buying and selling - no matter how large or small - contributes to what we call 'the economy'. Decisions by individuals, businesses and the government on whether they are going to buy or sell are influenced by the factors previously listed. The overall effect depends on how many people make decisions on whether to buy or sell. This is part of the difficulty with this section - it is all about millions of decisions, but it is difficult for us to be able to appreciate that every decision has an importance in its own way.

Economic Growth Economic growth refers to the rate at which economic activity changes over a period of time - usually a year.

A simple example…. There are ten people that make up a country. –They each buy and sell different things to enable them all to survive and prosper. –The total amount that they each spend in a year represents the value of the products and services they have bought. –When added together, this gives the level of economic activity for that year. In year 1, it comes to £1,000. In the next year, the value of the goods and services they buy and sell comes to £1025. –The rate of economic growth would be the difference between growth in year 1 and year 2 expressed as a percentage. The difference is £25. As a percentage, this is: 25/1000 x 100 = 2.5% This means that this simple economy is 2.5% bigger than the year before.

The UK Context In the UK, the current level of economic growth is around 2.7%. In a country like the UK, this is regarded as being a satisfactory level of growth. If growth was any larger than this it might cause some difficulties with inflation. A level of growth at 1% would be considered quite slow. X

What is the ‘current economic climate’? Task –Conduct some research on GDP and economic growth –Create a newspaper article on; “the effect of the rate of economic growth on the likely success of new business start-ups in 2010/11” –Try to find some ‘trends’, and plot these on a graph

The Business Cycle Over a period of time, there are changes in the level of economic activity in an economy. In some years economic growth might be quite slow and in other years growth rates tend to be stronger. There is a tendency for patterns of economic growth to occur. This is called the Business Cycle.

Strong Economic Growth There may be a period where economic growth is quite strong. –When this happens we might see the number of people being employed rising and the number of people unemployed falling. –This makes sense if you refer back to our definition of economic activity. If there is more buying and selling going on then businesses need to employ people to produce the goods and services that people want to buy. Strong economic growth is not going to last forever. –When business activity slows down economic growth also slows. The economy might still be growing - for example a 1% growth rate is still growth it is just not as fast a rate of growth as 2.5%.

Recession In some cases, economic growth can actually be negative. If there is negative economic growth for two successive quarters this is given a special name - a recession. The UK has been fortunate in not having had a recession since the early 1990s. –At that time, many people lost their jobs, interest rates were high and the amount of buying and selling was reduced. X

The business cycle is often expressed as a diagram like the one below:

Activity – Economic Activity What effects would a slowdown in economic activity have on the following businesses:  A supermarket like Tesco  A business selling furniture  A restaurant business?