The impact of the business cycle

1. The impact of the business cycle Grade B students

2. Activity – Create a webpage • On weebly (go to www.weebly.com) and create a webpage on the impact of the business cycle. • You will get all the information for your poster will be on the following slides • The webpage must have pictures and graphs • You can use the internet to help • You cant cut and paste my words, you must put in your words. I will know!!!!! • Once you have completed, send the web address to Mr Baker to check its ok (abaker@st-martins.essex.sch.uk). If confirmed print off

3. Key terms • Economic growth is rise in economic activity • Economy is the economic activity carried out by people and businesses in a country • Quarters is the year split into 4 sections like the seasons • Recession is when level of economic growth is negative for two successive quarters • Business cycle is the fluctuations of economic activity over time • Economic activity is the amount of buying and selling that takes place over time • GDP measures the VALUE of all goods and services produced in an economy over a period of time (usually a year). For example if the Wood economy only made cakes and made 10 cakes at £5 each, the GDP would be £50

4. The economy • Everyday millions of people buy goods and service in the UK. • Businesses provide goods and services to final consumers and to customers who might be other businesses • Buying a chocolate from a newsagent is just one example of economic activity (the amount of buying and selling over a period of time) • The economy is referred to all people and businesses buying and selling. • Over time people the level of economic activity changes. Sometimes it rises and sometimes it falls. • When we are confident about their jobs and feel their incomes will rise so they spend more • When we are not confident about the future, people might be worried about job losses, we end up stop spending and save.

5. Economic growth • Fifty year ago, very few people owned a car, now 1 car for every 2 people. • People have got better off in the last 50 years, they can buy more • People live longer, because they live in better housing and receive better healthcare from the NHS. • Students now stay in education • So why has this happened? Because economic growth has been averaging 2.5% a year (2.5% more people buying and selling than the previous year. • The office for national statistics (government) collect all the data about how much people are buying and selling each year and put in a graph (see next slide) • Sometimes people buy less than they did last year. Then it becomes a minus figure

6. ECONOMIC GROWTH AND DECLINE

7. The business cycle • On average, production and incomes have gone up by 2.5% over the last 50 years • However in some years, its more than 2.5% (economic activity rising) and some are less than 2.5% (economic activity slowing down) • Sometimes it can slowdown too much and if it slows down for 6 straight months (two quarters) it becomes a recession • Each economy have different levels of economic activity, this is called the business cycle

8. How businesses were affected by the business cycle The business cycle • Economic activity is the amount of production taking place. Over time, the level of economic activity in a country tends to move up and down in a business cycle. • Businesses may monitor economic activity and make predictions about how it will affect their output • In a downturn or slump output falls and many businesses shed staff because sales are falling. The economy experiences a recession. • In an upturn or boom, businesses increase output and hire more staff to keep up with extra demand. The economy experiences economic growth. • The impact of a recession varies from business to business. Firms making premium and luxury products are hit hard by any downturn because customers often cut back on non-essentials first. Businesses with large debts can find it hard to meet interest payments when sales fall. • However, a recession makes it easier for a business to recruit new staff in readiness for any upturn in economic activity.

9. How businesses were affected by the business cycle During the housing-market inspired boom of the early 2000’s, many retail and consumer goods businesses took advantage of the boom.  Consumers were prepared to take on significant personal debt in order to finance their purchases.  However, the sharp economic downturn during 2008 and 2009 saw many businesses suffer sales falls of between 10-30%. Some did not survive – their fixed costs were just too high to be able to remain viable. Businesses whose fortunes are closely linked to the rate of economic growth are referred to as “cyclical” businesses. Examples include: • Fashion retailers • Electrical goods • House-builders • Restaurants • Advertising • Overseas tour operators • Construction and other infrastructure firms By contrast, some businesses actually benefit from an economic downturn.  If their products are perceived by customers as representing good value for money, or a cheaper alternative than more expensive products, then consumers are likely to switch.  Good examples that were featured in the UK media during the recession of 2008/09 included: • Value retailers (e.g. Aldi, Lidl, Netto) • Fast-food outlets (e.g. Dominos, Subway) • Domestic holidays (e.g. B&Bs and holiday cottages) • Chocolate – for some reason, chocolate sales always increase strongly during an economic downturn!