Page 304 - Cambridge IGCSE Business Studies
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Cambridge IGCSE Business Studies Section 6 External influences on business activity
Boom
Economy
Slump
Recession Growth
Time
Figure 24.2 The business cycle
Growth
TOP TIP This stage is when the economy recovers or grows. It has the following key
Do not confuse the business characteristics:
cycle with the product cycle of a
particular business. A business ■ a positive outlook for new businesses
cycle shows the ups and downs ■ existing businesses grow and make profits
in the growth of an economy
302 ■ growth in economic activity measured by a rise in GDP until it reaches a maximum
over time – this aff ects all
(boom)
businesses. The product cycle
only refers to a product of an ■ falling unemployment as there are more jobs due to businesses doing well
individual business. ■ raised standards of living as more people are employed.
Boom
This stage is the peak of the business cycle. Its key characteristics are:
■ business investments and profits are at their highest levels
■ most sectors of the economy are performing at their best
■ high levels of demand for goods and services causing prices to rise (inflation)
■ very low unemployment rates and people have better jobs to choose from;
this leads to increased wage costs for businesses as well as a shortage of
skilled people.
Too much spending and high borrowing costs during this stage may be risky
for businesses. If the economic outlook looks poor, the economy may go into
a decline.
Recession
This is when the economy shrinks in size. Its key characteristics are:
TOP TIP
You must be able to define the ■ business confidence falls leading to less investment in new and existing
terms of the business cycle and businesses
explain how each stage of the
■ decline in economic activity until it reaches a minimum (slump)
business cycle could aff ect a
company’s sales and profit. ■ falling demand by consumers leads to falling profits
■ unemployment rises as businesses are not doing well and have to cut costs;
workers are made redundant and some businesses even close down.
