How businesses are affected by the BOOM period
Boom = time of rapid growth and expansion in the economy.
- 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 increase.
- Many new business start-ups 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 rise as some resources become scarce; this may also increase prices.
- Inflation can cause problems for a business.
How businesses are affected by the DOWNTURN period
Downturn = the boom slows and the rate of growth decreases.
- Inflation may ease
- Increase in prices and costs begin to slow and they may begin to fall.
- Sales of income elastic goods wil fall
- Sales of other goods will begin to slow
- Unemploymeent begins to rise and consumers feel less confident, they may reduce spending
- Investment slows and may fall.
How businesses are affected by the RECESSION perio
Recession = there are at least two consecutive quaters of negative growth.
- Prices may fall as supply exceeds demand
- Cost may fall as some resources become more plentiful, this may also reduce prices
- Output of inferior goods will rise
- Sales of inferior goods will increase as consumers buy fewer normal goods and replace them with inferior goods.
- Sales of income elastic goods will fall significantly
- Sales of normal goods will fall
- Unemployment is high, consumers have less income to spend and feel 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.
How businesses are affected by the RECOVERY period
Recovery = positive growth returns, slowly at first then picks up pace.
- Sales of income elastic goods begin to recover
- Sales of other goods begin to rise
- Consumers begin to feel that the worst is over, unemployment begins to fall and they spend more
- Investment begins to increase as confidence returns
- Output begins to rise
- There may be early signs of inflation as economic growth returns.
% Growth GDP = Rapid
Inflation = High
Unemployment = Low
Output = High
Incomes = Rising
Baste Rate = High
% Growth GDP = Slowing
Inflation = Slowing
Unemployment = Increasing
Output = Static
Incomes = Static
Base Rate = Falling
% Growth GDP = Negative
Inflation = Low
Unemployment = High
Output = Falling
Incomes = Falling
Base Rate = Low
% Growth GDP = Increasing
Inflation = Rising
Unemployment = Falling
Output = Increasing
Incomes = Static
Base Rate = Increasing