Transcript Economic influences File

Level 1
Business Studies
1.2 - AS90838
Demonstrate an understanding of external
factors influencing a small business
Economics Influences
Economic Influences
Students will identify
economic influences on
business.
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Define the business cycle
Discuss the impact (costs
and benefits) the different
stages of the business
cycle have on small
businesses in
New Zealand
Business Cycle
What Does Business Cycle Mean?
The recurring and fluctuating levels of
economic activity that an economy
experiences over a long period of time.
http://www.investopedia.com/
Business Cycle
The four stages of the business cycle are:
1. growth (expansion),
2. peak,
3. recession (contraction),
4. trough
At one time, business cycles were thought to be
extremely regular, with predictable durations, but today
they are widely believed to be irregular, varying in
frequency, magnitude and duration.
http://www.investopedia.com/
Business Cycle
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Definition: A business cycle is the periods of growth and
decline in an economy. There are four stages in the
business cycle:
Recession / Contraction - When the economy starts
slowing down.
Trough - When the economy hits bottom, usually in a
recession.
Growth / Expansion - When the economy starts growing
again.
Peak - When the economy is in a state of "irrational
exuberance."
Peak
What Does Peak Mean?
The highest point between the end of
an economic expansion and the start
of a contraction in a business cycle.
The peak of the cycle refers to the last
month before several key economic
indicators, such as employment and
new housing starts, begin to fall.
It is at this point that real GDP
spending in an economy is its highest
level.
Peak
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Recession
Is the first part of a recessionary /
contractionary phase. Consumer's
confidence starts to decrease a little.
People start to stop buying large items such
as cars, major appliances and houses.
This results in businesses starting to reduce
their output of these items(inventory levels).
Businesses start to decrease their hiring,
they may even start to layoff some of their
employees.
Workers might have to take wage cuts.
Resulting in prices decreasing.
Recession
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The standard newspaper definition of a recession is a
decline in the Gross Domestic Product (GDP) for two or
more consecutive quarters.
This definition is unpopular with most
economists for two main reasons.
First, this definition does not take into
consideration changes in other variables.
For example this definition ignores any
changes in the unemployment rate or consumer confidence.
Second, by using quarterly data this definition makes it
difficult to pinpoint when a recession begins or ends. This
means that a recession that lasts ten months or less may go
undetected.
http://economics.about.com/
Recession
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A recession is a period of
reduced economic activity in
which levels of buying, selling,
production, and employment
typically diminish.
This is the most unwelcome
stage of the business cycle for
business owners and
consumers alike.
The bottom of a recession is
referred to as a trough
A particularly severe recession
is known as a depression.
What happens during a recession?
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What falls?
1. production, as measured by
gross domestic product (GDP),
2. employment,
3. investment spending,
4. capacity utilisation,
5. household incomes and spending
6. business profits,
7. prices and inflation,
8. government revenue from tax and GST
What rises?
1. bankruptcies and
2. the unemployment rate
Deep Trough
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A deep trough is called a slump or a depression.
Depressions
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A depression is a severe downturn in economic activity.
These are considerably worse than recessions.
Businesses struggle to make profits, forcing them to
reduces wages and cut back on staff numbers.
This causes unemployment rates to rise across the entire
country.
Work becomes much harder to find, and even people with
spotless credit histories fail to make their loan repayments,
leading to mass home repossessions.
Recovery
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Also known as an upturn, the
recovery stage of the business
cycle is the point at which the
economy "troughs" out and
starts working its way up to
better financial footing.
Demand for goods generally
increases resulting in
increased output and
employment.
Growth
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Peak
Economic growth is in essence a period
of sustained expansion.
Signs of this part of the business cycle
include increased consumer confidence,
which translates into higher levels of
business activity.
Because the economy tends to operate
at or near full capacity during periods of
prosperity, growth periods are also
generally accompanied by inflationary
pressures.
Benefits for small businesses
of growth and expansion
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Greater business confidence
Businesses produce more goods
Businesses invest in more machinery and assets
Consumers spend more money.
Increased employment, promotion opportunities and
security for management and employees
Increased business profit
Prices tend to increase due to extra demand
Costs at different stages of
the business cycle
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Employment: The full impact of a recession on
employment may not be felt for several quarters.
Research shows that low-skilled, low-educated workers
and the young are most vulnerable to unemployment in a
downturn.
Costs at different stages of
the business cycle
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Business: Productivity tends to fall in the early stages of
a recession, then rises again as weaker firms close. The
variation in profitability between firms rises sharply.
Recessions have also provided opportunities for anticompetitive mergers, with a negative impact on the wider
economy:
Costs at different stages of
the business cycle
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Social: The living standards of people dependent on
wages and salaries are more affected by recessions
than those who rely on fixed incomes or welfare benefits.
The loss of a job is known to have a negative impact on
the stability of families, and individuals' health and wellbeing.