2. What is a business cycle?
Business Studies You MUST focus on the impact on businesses!

3. Syllabus aims within Business Cycle…
You must be able to
Identify the phases of the business cycle
Identify the causes of Business cycle instability, (durables, stock levels and investment decisions),
Explain the business implications,
eg business opportunities during upturn.

4. Business Cycle & Long term trends…

5. Business Cycle Phases..

6. Gross Domestic Product:
Key Concepts – G.D.P
Gross Domestic Product:
The value of output of goods and services produced in the country during one year
Includes all Primary, secondary and tertiary sectors
Can be viewed as being national income, national output or aggregate demand (AD)
GDP per capita – GDP divided by the population (GDP per head)
All countries experience economic cycles with their G.D.P

7. The UK Economic Cycle Can you spot the Slump? Boom? Recovery? Decline?
National output does not rise or fall at a uniform rate! There exists a business cycle where the rate of growth of national output, incomes and spending fluctuates over time. When national output and spending is rising quickly the economy is experiencing growth or recovery. In contrast, when real output falls or when the growth of output is below its long run trend rate - then a slowdown or full-scale recession exists. In 2003, real GDP grew by 2.1%, a little below the long run trend, but it marked the twelfth year of sustained economic growth – the longest period of economic expansion for several decades.
Can you spot the
Slump?
Boom?
Recovery?
Decline?

8. Causes of the Business cycle fluctuations
Changes in business confidence
Alternating periods of stocking & de-stocking
Changes in the amount of spending on large consumer items
Changes in govt policy

9. The recession of the early 1990s

10. Data on the last recession (1)

11. Data on the last recession (2)

12. Data on the last recession (3)

13. In a recession what happens to Growth? Consumer spending? Employment?
Business confidence?
Would you INVEST or rationalise in a downturn/slump?
Consumer confidence?
Would you spend, invest or borrow in a downturn/slump?

14. Recession and businesses
What would the impact be of a recession in the following businesses?
Gym membership
Restaurants
Bakers
Tobacco companies
Construction firms
Car dealers
Jewellers
Vegetable market stalls
Are there any products that we would buy more of in a recession?
Think back to elasticity and luxury/inferior goods!

15. There is a lot more output.
Business and a Boom!
A boom occurs when national output is rising at a rate faster than the trend rate of growth…i.e. faster than Govt expects!
It is characterised by HIGH consumer spending, high business confidence, investments and profits!
There is a lot more output.

16. In a boom, what happens to ….
Growth?
Consumer spending?
Employment?
Business confidence? Would you INVEST or rationalise in a Boom?
Consumer confidence? Would you spend, invest or borrow in a boom?
Can you explain why?

17. Boom – good or bad for business?
Good issues
Easy to sell goods
Business grows
Take on new workers
More investment in new technology
Business profits
Bad issues
What if business it at maximum capacity?
How easy is it to recruit new workers?
If everyone is employed…what will this do to wages?
Higher costs = inflation!

18. Business strategy to survive a recession
What strategies would you use in each department?
Marketing
Operations Management?
Accounts
HRM
Take one business that should be concerned with a recession and decide on a strategy to manage a recession….
Gym
Jeweller
Clothing retailer
Restaurant
Local builder

19. The Need for Macroeconomic Stability
Large fluctuations in output, employment and inflation add to uncertainty for businesses and consumers, and can reduce the economy's long-term growth potential
Stability allows businesses, individuals and the Government to plan more effectively for the long term, improving the quality and quantity of investment in physical and human capital and helping to raise productivity
Adapted from the Budget Statement, April 2003
The Government places great emphasis on achieving economic stability – it regards it as essential in promoting long term economic success. What are the consequences of an unstable economy? What tools are at the disposal of the government if it wants to achieve more stability?

20. Characteristics of an Economic Boom
Strong and rising level of AD
Often driven by fast growth of consumption
Rising employment and real wages
High demand for imported goods & services
Government tax revenues will be rising quickly
Company profits and investment increase
Increased utilisation rate of existing resources
Danger of demand-pull and cost-push inflation if the economy overheats
Short term economic growth is driven by (a) the level and growth of aggregate demand and (b) the amount of short term spare capacity in the economy to meet this demand (i.e. the elasticity of SRAS)

21. Characteristics of an Economic Recession
Declining aggregate demand for UK output
Contracting employment / rising unemployment
Sharp fall in business confidence & profits
Decrease in fixed capital investment spending
Reduced inflationary pressure
Falling demand for imports
Increased government borrowing
Lower interest rates from central bank
The volatility and length of the business cycle will vary from country to country. The economy cycle for the UK over the last twenty years seems to have become a little less volatile. The British economy has grown each year since 1993 and is currently in its longest phase of sustained growth for over forty years

22. Construction projects and the multiplier effect
Major construction projects such as the new Terminal 5 building at Heathrow can have big multiplier effects
Thousands of people are employed within the project
Their incomes are re-injected into the local economy
Companies supplying to the project will also increase their own spending