business cycle

How does strong economic growth affect investment in capital goods?

Firms invest more to expand capacity to meet increased demand.

What causes a skills shortage during growth periods?

Demand for skills rises faster than supply, causing shortages in key industries.

What are two strategies a company may adopt to benefit from sustained growth?

Expand production and hire staff; increase marketing and innovation.

What business opportunities can firms pursue during an upturn or recovery?

Attract new customers, expand product lines, or open new locations.

What are the implications for a manufacturer of kitchen equipment regarding the unpredictability of the business cycle?

Uncertain demand makes it difficult to plan production and manage stock levels, requiring businesses to remain flexible.

What is GDP?

Gross Domestic Product is the total country's output of goods and services in a year.

What causes demand and output to fluctuate in a cyclical manner?

Fluctuations are caused by changes in confidence, investment, government actions, and external factors such as global events.

What are two causes of the recession phase?

1) Fall in consumer spending 2) Rising interest rates or external shocks.

What are two effects of the boom phase on a business?

1) Increased profits 2) Higher investment and expansion.

What are the implications of a recession for a firm selling an inferior good versus a luxury good?

Inferior goods may see increased sales while luxury goods experience a sharp fall in demand.

How does economic growth impact sales of income elastic goods?

As incomes rise, demand for income elastic goods also increases.

What are likely effects on businesses during a downturn in the business cycle?

Businesses may struggle to survive, experience reduced profits, possible closures, and falling prices due to lower demand.

What are possible business decisions during a downturn?

Businesses may retrench by closing parts of their operation or consolidate to focus on survival, which might include merging or downsizing.

What types of functional decisions might businesses make in a downturn?

Functional decisions may include cutting prices, reducing staff, minimizing stock levels, and renegotiating supplier contracts.

What is a key feature of the recovery phase in a business cycle?

Key features include offering easy payment terms, increased consumer spending, green shoots of economic growth, and decreased unemployment.

What are likely effects on businesses during the recovery phase?

Businesses may start to reinvest, leading to increased sales and profits, along with more employment opportunities.

What possible strategic decisions can businesses make during recovery?

Businesses may expand by investing in new products or technology and re-entering markets.

What functional decisions might businesses implement during recovery?

Functional decisions may include increasing production and recruiting more staff to meet rising demand.

What constitutes an official recession?

Two successive quarters of negative growth.

What are some likely effects on businesses during a recession?

Reduced profits, decreased investment, falling capacity utilisation, price reductions to attract demand, and rising unemployment.

What strategic decisions might a business consider during a recession?

Delaying expansion and focusing on cost-cutting.

What functional decisions can businesses make in response to a recession?

Reducing output and cutting costs.

What is a possible outcome if a recession worsens into a slump?

Prolonged negative growth and very high unemployment.

How does a recession affect consumer spending?

Consumer spending becomes very low during a recession.

What role does the Bank of England play during a recession?

The Bank of England may reduce interest rates further to stimulate the economy.

What is the likely impact on capacity utilisation during a recession?

Capacity utilisation becomes extremely low.

What might firms do to boost sales during a recession?

Offer promotions and discounts.

What is a key feature of a slump?

High unemployment and prolonged periods of negative growth.

What are the key features of a Boom in the Business Cycle?

Upward pressure on prices due to excessive spending and insufficient supply, low unemployment, high business and consumer confidence, potential increase in dividends to shareholders.

What happens to interest rates during a Boom?

The Bank of England (BOE) may raise interest rates to control inflation.

What are likely business decisions during a Boom?

Firms may expand operations, invest in new products, increase output, hire more staff, and raise prices to match demand.

What are the key features of a Recession in the Business Cycle?

Interest rates are lowered by the BOE to encourage borrowing and spending, demand starts to fall, and growth slows.

How does the Business Cycle affect unemployment during a Boom?

Unemployment is typically low during a Boom.

What impact does a Boom have on firms' capacity utilization?

Capacity utilization is high as firms operate near full capacity.

How does demand influence inflation during a Boom?

Increased demand exceeds supply, leading to inflationary pressure.

What are core competencies in business?

Core competencies are the unique abilities that a business possesses which provide it with its competitive advantage.

What does the transformation process measure?

The transformation process measures the inputs required to produce a unit of output.

What is the formula for calculating the gearing ratio?

Gearing ratio is calculated as total liabilities divided by the sum of total equity and non-current liabilities.

What is depreciation in terms of business assets?

Depreciation is the reduction of the value of an asset over a period of time, which impacts the overall value of the business.

What is a tactical decision in business?

A tactical decision is a short-term decision, usually involving relatively few resources, made to implement a strategy.

What does the business cycle refer to?

The business cycle refers to the regular patterns of ups and downs in demand within an economy, characterized by four main phases: boom, recession, slump, and recovery.

What are the four main phases of the business cycle?

The four main phases of the business cycle are boom, recession, slump, and recovery.

What can characterize a boom phase in the business cycle?

A boom phase is characterized by high demand and GDP growth.

What happens during a recession phase?

During a recession phase, there is a decline in demand and GDP.

What occurs in the slump phase of the business cycle?

In the slump phase, economic activity is at its lowest and demand is very weak.

What is recovery in the context of the business cycle?

Recovery refers to a phase where economic activity begins to increase again following a recession.