The Relationship between business and the economic environment
Economic Growth- GDP
Economic Growth…
…An increase in an economy’s ability to produce goods and services
Gross Domestic Product- represents the value of a country’s national income in one year.
An increase in real GDP means that the standard of living within a country is increasing. It is therefore used as a way of measuring a country’s economic growth.
The Business Cycle- there are discernable patterns in these levels over time, there will be periods of time when economic activity is rising and other times when the level of economic activity slows down.
The Business Cycle
The Four Stages of the Business Cycle are:
Boom: A period of very fast economic growth, with rising incomes and profits. Inflation will rise and there will be shortages of key skilled worker, leading to high wage increases. High inflation will make the country less competitive, and business confidence will eventually fall due to rising cost.
Interest rates are increased to slow down growth.
Recession/Downturn: Demand stats to fall as interest rate rise. Real GDP stats to slow and will eventually fall. Incomes and demand fall, as do profits. Some firms will be forced out of business.
Possible Strategies during a recession:
• Close down arts of the business and make redundancies
• Develop new products that appeal to customers as income fall
• Lower price to maintain sales
• Look to expand, as prices will be much lower than during a boom
• Target growth markets overseas
Slump/Trough: Real GDP falls substantially, which leads to higher unemployment and further failure of businesses. Confidence low and interest rates are reduced to try and stimulate new demand in the economy.
Recovery/Upswing: The low interest and inflation rates will start to encourage new spending in the economy. Real GDP will begin to increase and the country will start to employ more workers and become competitive once more.
Possible strategies during recovery:
• Expand production capacity
• Develop
Economic Growth…
…An increase in an economy’s ability to produce goods and services
Gross Domestic Product- represents the value of a country’s national income in one year.
An increase in real GDP means that the standard of living within a country is increasing. It is therefore used as a way of measuring a country’s economic growth.
The Business Cycle- there are discernable patterns in these levels over time, there will be periods of time when economic activity is rising and other times when the level of economic activity slows down.
The Business Cycle
The Four Stages of the Business Cycle are:
Boom: A period of very fast economic growth, with rising incomes and profits. Inflation will rise and there will be shortages of key skilled worker, leading to high wage increases. High inflation will make the country less competitive, and business confidence will eventually fall due to rising cost.
Interest rates are increased to slow down growth.
Recession/Downturn: Demand stats to fall as interest rate rise. Real GDP stats to slow and will eventually fall. Incomes and demand fall, as do profits. Some firms will be forced out of business.
Possible Strategies during a recession:
• Close down arts of the business and make redundancies
• Develop new products that appeal to customers as income fall
• Lower price to maintain sales
• Look to expand, as prices will be much lower than during a boom
• Target growth markets overseas
Slump/Trough: Real GDP falls substantially, which leads to higher unemployment and further failure of businesses. Confidence low and interest rates are reduced to try and stimulate new demand in the economy.
Recovery/Upswing: The low interest and inflation rates will start to encourage new spending in the economy. Real GDP will begin to increase and the country will start to employ more workers and become competitive once more.
Possible strategies during recovery:
• Expand production capacity
• Develop