How does macroeconomic change affect businesses?

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What is the economic cycle?
Describes the fluctuations in the levels and rates of growth of GDP over a period of time.
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What is a boom?
A time of rapid growth and expansion in the economy.
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What is a downturn?
The boom slows and the rates of growth decreases.
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What is a recession?
When they is atleast two consecutive quarters of negative growth.
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What is a recovery?
Positive growth returns, slowly at first but it then picks up.
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What is GDP growth, inflation, unemployment, output, incomes and base rate like in boom periods?
GDP growth is high, inflation is high, unemploment is low, output is high, incomes are rising, base rate is high.
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What is GDP growth, inflation, unemployment, output, incomes and base rate like in a downturn?
GDP growth is slowing, inflation is slowing, unemployment is increasing, output is static, incomes are static, base rate is falling.
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What is GDP growth, inflation, unemployment, output, incomes and base rate like in a recession?
GDP growth is negative, inflation is low, unemployment is high, output is falling, incomes are falling, base rate is low.
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What is GDP growth, inflation, unemployment, output, incomes and base rate like in a recovery period?
GDP growth is increasing, inflation is rising, unemployment is falling, output is increasing, incomes are static, base rate is increasing.
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How are businesses affected by the boomperiod?
Sales of income elastic goods increase, sales normal goods rise, unemployment lowmore consumer spending, output of normal goods rise, many startups, sale of inferior goods fall,price increase as demand exceeds supply,resources become scarce,inflation
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How are businesses affected by the downturn period?
Sale of income elastic goods fall, sale of other goods slow, unemployment rises reduces consumer spending, investment slows, output slows and may fall, prices may fall, inflation may fall.
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How will businesses be affected by the recession period?
Sales of income elastic goods fall, sales of normal goods fall, high unemployement less consumer spending, output of normal goods fall, investment falls, sales of inferior goos rise, prices may fall as demand outstrips supply, resources less scarce.
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How will businesses be affected by the recovery period?
Sales of income elastic goods begin to recover, sales other goods begin to rise, consumers feel worst is over unemployment begins to fall increasing consumer spending, output rises, early signs of inflation.
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What is inflation?
An increase in prices over time.
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How is inflation calculated?
By recording the prices of a basket of goods that an average family would buy.
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What are the the two most common methods of measuring inflation?
Retail price index (RPI and consumer price index (CPI)
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What is the difference between CPI and RPI?
RPI includes mortgage interest payments.
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What is a real value?
Real means the effects of inflation have been removed.
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What is a nominal value?
The value is expresses in current prices
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What problems does inflation cause?
Money loses its value and people loss confidence. The nominal rate of interest may be less than inflation, fixed income consumers lose out, borrowers gain because the amount the borrowed is less than when they re paid it.
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How does inflation cause uncertianty?
Harder to predict accurate cash flows and profits fue to changing prices. Make the nation less competitive prices go up faster than other countries. Exchange rates depreciating it may be possible to automatically adjust inflation but this causes more
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When do skills shortages occur?
When employers want to recruit people with scarce and valuable skills. This is likely to happen in a boom period.
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What does the Bank of England do when inflation is accelerating fast?
Increases interest rates to discourage spending.
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What affect will an increase in interest rates have on consumers and businesses?
Businesses will have to pay more when they borrow. Consumers will have to pay mor wen they borrow personal loans and credit card borrowings.
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What is unemployment?
The number of people who are willing but unable to find work.
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Who does unemployment not include?
Full time students, the retired, children, or those not actively looking ofr a paying job.
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What is structural unemployment?
When people have the wrong skills for the job or are in the wrong place. Can be associated with declining industries.
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What is cyclical unemployment?
Caused by a downturn. Occurs when fewer workers are needed because less is being spent.
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What is frictional unemployment?
Always present- it is when people move between jobs like graduates. It is beneficial because people seek out jobs they prefer and companies can find the best people. Without it the economy would be static.
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What is regional unemployment?
When the rate of unemployment is different in different areas, it is often linked to declining industries.
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What is seasonal unemployment?
Occurs when there is seasonal variation in demand and people aren'y employed all year round.
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What is the cost of unemployment on the economy?
Can be seen as an oppertunity cost- the alternative is employment it represents a loss of potential output. MOre spending on benefit for unemployed- this is also oppertunity cost, financial strain on governement- recieves less taxes.
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What are the social costs of unemployment?
Problems with housing, health-depressionmily problems. Long term unemployment can result in the need for re training.
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What effect does rising unemploymen have on businesses?
Fewere employed means less demand- less profit, income elastic products see a biger drop in sales, businesses who sell inferior goods will benefit, wages may be static or decrease meaning lower costs.
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What effect does falling unemployment have on businesses?
Greater demand for products-more profit, income elastic goods increase in sales as people have more income, cheaper substitutes may see sales fall, harder to recruit workers as labout pool shrinks, upward pressure on wages meaning higher costs.
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What is structural change?
Occurs when economies change over time.
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When does structural change occur?
New technologies that mechanises processes which saves on labour costs, businesses outsource production where labour is cheaper.
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When do problems arise with regards to structural change?
Geographical immobility of labour- if labour can't move to where the jobs are, occupational immobility of labour- labour doesn't have necessary skills and abilities to adapt to changing job requirements.
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What is the knowledge economy?
Were intellectual skills, knowledge, understanding and ideas are central to enconomic activity and more important than physical effort.
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What are the implications of the knowledge economy on businesses?
More emphasis of R+D, need to invest new tech and communication, needs to adapt rapidly, employees need training and updating, managers needs to keep up, new ideas need protecting, more competition from home and abroad.
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What are the implications of the knowledge economy on the wider economy?
Education more important, retraining or those with non transferrable skills, skills like IT and science need encouraging,investment needed in infrastructure,intellectual property rights need to be protected,areas of structural decline get investment
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Give an example of a winner of structural decline?
Pharmaceutical industry.
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Give an example of a loser of structural decline?
Coal minning, textiles, shipbuilding
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Other cards in this set

Card 2

Front

What is a boom?

Back

A time of rapid growth and expansion in the economy.

Card 3

Front

What is a downturn?

Back

Preview of the front of card 3

Card 4

Front

What is a recession?

Back

Preview of the front of card 4

Card 5

Front

What is a recovery?

Back

Preview of the front of card 5
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