Economic issues
The business cycle
- External influences are things outside the business it can't control.
- The economy moves in a business cycle: growth → boom → recession → slump → recovery.
- In a recession, sales and profit fall and firms cut jobs; in hard times a business may cut costs, lower prices, or sell cheaper products.
Practice
During a recession, a business usually sees:
In a recession spending falls, so sales and profit drop and firms may cut jobs.
Economic factors
| Factor | Effect on business |
|---|---|
| taxation | higher tax → less spending, lower profit |
| interest rates | higher rates → dearer loans, less spending/investment |
| inflation | costs rise; goods can become too dear |
| exchange rates | change the price of imports and exports |
Practice
A rise in interest rates tends to make businesses:
Higher interest rates make loans dearer, so firms invest less and customers spend less.
Practice
High inflation raises a business's costs.
Inflation pushes up the price of materials and wages, raising costs.
You've got it
Key idea
- the business cycle: growth → boom → recession → slump → recovery
- recession = falling sales/profit, job cuts
- higher tax/interest rates cut spending; inflation raises costs