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External Influences

External Influences. The Economy. Small businesses are can be influenced by the conditions in the wider New Zealand economy. Often how an economy is performing is based on its level of growth or GDP (Gross Domestic Product.

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External Influences

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  1. External Influences The Economy

  2. Small businesses are can be influenced by the conditions in the wider New Zealand economy. • Often how an economy is performing is based on its level of growth or GDP (Gross Domestic Product. • GDP is the total value of goods and services produced by New Zealand in a given time frame (usually 1 year) • If GDP is high this can have a ripple effect on a small business as is the case when GDP is low

  3. The Business (Trade) Cycle • The phases of growth an economy experiences can be summarised in the Business Cycle: Boom/Peak Upturn/Upswing/ Recovery GDP $ Downturn/Downswing Recession Slump/Trough Depression Time (Years)

  4. Significant Periods of Boom/Recession??? • Can you think of any significant times of boom or recession??

  5. Working in pairs or small groups: • Identify what you think the economy (and small businesses) would be experiencing in a time of Boom. • Identify what you think the economy (and small businesses) would be experiencing in a time of Recession.

  6. Boom • High levels of economic growth (GDP) • Increased production of goods and services • Increased consumer spending • Increased revenues and profits • Businesses invest and expand • Employment increases • New businesses will open and therefore competition could increase.

  7. Recession • Low levels of economic growth (GDP) • Falling levels of production • Falling levels of consumer spending • Falling revenues and profits • Increase in unemployment • Businesses reduce spending and tend not to expand or invest. • Depending on the severity of the recession some businesses will not survive. • Please note recession DOES NOT = Bankruptcy!!

  8. Government Policy-Monetary Policy • Used for ‘Price Stability’ which is one of the main goals of Government • The aim of the Government is to keep inflation between 1-3% (i.e. prices not too high and not too low) • Use the Official Cash Rate (OCR) to influence the interest rates in the banks

  9. In a boom When prices get high……… RBNZ raises the OCR In a recession the opposite would happen Banks will raise the interest rates Borrowing more expensive Consumer saves more Less investment into growth and expansion by firms Less Spending Prices fall (less pressure on inflation)

  10. What are the main areas of spending? Fiscal Policy • Government Spending and Revenue • Used with Monetary Policy • In times of recession the Government can increase their spending and/or reduce taxes • In times of boom the Government can reduce spending and/or increase taxes What types of tax exist in NZ?

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