The Effects on Businesses in the Economic Cycle

Little chart outlining how a business is affected in each of the 4 stages of the Economic Cycle

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The Effects on Businesses in the Economic Cycle
How Businesses are affected by the BOOM period
Sales of income elastic goods will increase significantly
Sales of normal goods will rise
Unemployment is low, consumers have more income to spend and feel more
confident about the future
Output of normal goods will rise and investment will be increased
Many new business startups and existing ones expand
Sales of inferior goods will fall as consumers substitute normal goods in their place
Output of inferior goods will fall
Prices may rise as demand exceeds supply
Costs may also rise as some resources become scarce
Inflation can cause problems
How Businesses are affected by the DOWNTURN period
Sales of income elastic goods will fall
Sales of other goods begin to slow
Unemployment begins to rise and consumers feel less confident and so may reduce
spending
Investment slows as expectations of growth diminish
Output slows and may fall
Increases in prices and costs begin to slow and they may begin to fall
Inflation may ease
How Businesses are affected by the RECESSION period
Sales of income elastic goods will fall significantly
Sales of normal goods will fall
Unemployment is high with consumers having less income to spend and feeling more
uncertain about the future
Output of normal goods will fall and investment falls
Many businesses will fail and existing ones will cut back output
Sales of inferior goods will increase as consumers by fewer normal goods
Output of inferior goods will rise
Prices may fall as supply exceeds demand
Costs may also fall as some resources become more plentiful
How Businesses are affected by the RECOVERY period
Sales of income elastic goods begin to recover
Sales of other goods begin to rise
Consumers begin to feel the worst is over so they spend more
Unemployment begins to fall
Investment begins to increase as confidence returns
Output begins to rise
There may be early signs of inflation as economic growth returns

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