humanities economics (exam practice)

business cycle

the movement of economic activity over time measured using real gdp

real gdp

The value of all goods and services in a country adjusted for inflation

expansion

a stage where an economy is growing

-GDP increases

-Unemployment decreases

-Business confidence increases

-Inflation may increase

peak

The highest point of economic activity before it starts to slow down.

-Economy is at its strongest

-Inflation often high

contraction (recession)

A period where the economy is shrinking.

-GDP decreases

-Unemployment increases

-Businesses earn less money

-Confidence falls

trough

is the lowest part of the business cycle before recovery begins

Economic growth

An increase in the value of goods and services produced in an economy over time.

GDP (Gross Domestic Product)

Total value of goods and services produced in a country.

Sustainable Growth

Economic growth that can continue long-term without harming the environment or future resources.

GDP per capita

GDP divided by population.

-Shows average income/wealth per person

-More useful than GDP alone because it includes population size

Labour force

People who are employed AND people who are unemployed but actively looking for work.

Unemployed

People who do not have a job but are actively looking for one.

Unemployment rate

The percentage of the labour force that is unemployed.

Frictional unemployment

Temporary unemployment when people are between jobs or entering the workforce.

Structural unemployment

Unemployment caused when skills are no longer needed or industries change.

Example: machines replacing workers

Cyclical unemployment

Unemployment caused by changes in the business cycle.

-Happens during recessions when demand falls

-Businesses reduce staff

Inflation

A general increase in prices over time.

Causes of inflation

-Increased demand for goods/services

-Higher production costs (wages, materials)

Business responsiveness

How businesses change their actions in response to economic conditions.

Recession (business impact)

Businesses may reduce costs due to lower demand.

Expansion (business impact)

Businesses may expand production due to higher demand.

Research and Development (R&D)

Money spent by businesses to create or improve products and services.

Product innovation

Creating or improving a product.

Example: new phone model

Process innovation

Improving how something is produced.

Example: faster manufacturing system

Marketing

All activities used by a business to promote and sell products.

Includes:

advertising

pricing

branding

targeting customers

Branding

How a business is recognised and trusted by customers.

Adjusting output

Changing how much a business produces based on demand.

High demand → increase production

Low demand → decrease production

Staffing changes

Hiring or firing workers depending on economic conditions.