Exam code: 0450, 0986 & 0264, 0774
1/21
0Still learning
Know0
Define business cycle.
The business cycle describes the upturns and downturns in a country’s economic activity (GDP) over time, including stages such as growth, boom, recession, and slump.
Define inflation.
Inflation is a general rise in the prices of goods and services over time, which reduces the value of money.
Define recession.
A recession occurs when an economy experiences two consecutive quarters (6 months) or more of negative GDP growth, leading to lower incomes and rising unemployment.
Did this page help you?
Define business cycle.
The business cycle describes the upturns and downturns in a country’s economic activity (GDP) over time, including stages such as growth, boom, recession, and slump.
Define inflation.
Inflation is a general rise in the prices of goods and services over time, which reduces the value of money.
Define recession.
A recession occurs when an economy experiences two consecutive quarters (6 months) or more of negative GDP growth, leading to lower incomes and rising unemployment.
What strategy might a business use during a recession?
During a recession, businesses often cut costs by reducing jobs or delaying investment.
How does high unemployment during a recession affect businesses?
High unemployment during a recession leads to lower consumer demand, especially for non-essential goods, reducing sales for businesses.
What happens to wages and business costs during an economic boom?
During an economic boom, wages and business costs tend to rise due to high demand for labour and goods, increasing competition for staff and raw materials.
True or False?
Businesses should always expand during a boom.
False.
Although a boom provides opportunities for expansion, rising costs and increased competition can make expansion risky for some businesses.
Why might falling prices during a recession reduce sales for businesses?
Falling prices can encourage consumers to delay spending in hopes of even lower prices, leading to reduced sales for businesses during a recession.
What stage of the business cycle is characterised by high unemployment and significant declines in household income?
The slump stage is characterised by high unemployment and significant declines in household incomes and business profits.
How might a business benefit during a period of low/negative economic growth?
During periods of low or negative economic growth, businesses selling inferior goods (low-cost options) may benefit as consumers switch to cheaper products.
Define economic growth.
Economic growth is the increase in the value of goods and services produced per head of population over time.
What is the target inflation rate set by the UK and US governments for their Central Banks?
The target inflation rate set by the UK and US governments for their Central Banks is 2%.
Exports bring currency into an economy, while imports lead to currency of it.
Exports bring foreign currency into an economy, while imports lead to currency flowing out of it.
Define interest rate.
The interest rate is the cost of borrowing money and the reward for saving.
How do higher interest rates affect business borrowing and investment?
Higher interest rates increase the cost of loans for businesses, so they are less likely to borrow for growth or investment.
When interest rates rise, customers are likely to purchase goods on credit, leading to a in sales.
When interest rates rise, customers are less likely to purchase goods on credit, leading to a fall in sales.
Define austerity.
Austerity refers to reduced government spending which leads to fewer contracts for firms and lower consumer spending.
How does increased government spending benefit businesses?
Increased government spending creates new demand for goods and services and improves infrastructure, helping businesses operate more efficiently and expand.
When government spending falls, a business may back operations, its workforce, or postpone investment.
When government spending falls, a business may scale back operations, reduce its workforce, or postpone investment.
What is the effect of higher corporation tax on business profits?
Higher corporation tax reduces the share of profit a business keeps, leaving less money for reinvestment, expansion, or dividends.
A rise in income tax means consumers keep of their wages, leading to disposable income and lower demand.
A rise in income tax means consumers keep less of their wages, leading to less disposable income and lower demand.