Name – Sam Morgan
Business Cycle and its Impact
BOOM
Low levels of unemployment.
High levels of disposable
income/pay rises.
People more confident to
What is happening in the invest.
economy? Interests rates are high- to
encourage saving.
Rising GDP.
Business and consumer High confidence – lots of
confidence? investment.
Unemployment levels? Low unemployment levels
High risk of inflation. Interest
rates increased with the aim of
Inflation?
slowing growth.
RECESSION
Rising levels of unemployment.
Falling disposable income/pay
cuts.
People becoming less confident
to invest in a business, GDP
falls.
Interest rates are cut –
encourages spending.
2 consecutive quarters fall in
GDP.
Falling confidence – less
investment. (Self-fulfilling)
Rising unemployment levels.
The risk of inflation falls with a
recession as the economy is
shrinking.
Mrs Osborne: Page - 1
SLUMP / DEPRESSION
Economy is at rock bottom.
High levels of unemployment.
Little disposable income.
Little confidence to invest in
businesses. GDP is low.
Interest rates are set very low –
encourages spending to boost
economy.
Beyond 2/4 fall in GDP.
Very low confidence – no
investment.
High unemployment levels.
Very low risk of inflation as
economy is at rock bottom.
RECOVERY
Economy is growing back after
a slump.
Falling unemployment.
Increasing disposable
income/pay rising.
An increase in confidence to
invest in a business.
Interest rates start to increase
to encourage saving.
Rising GDP.
Increasing confidence – more
investment.
Falling unemployment levels.
Increasing risk of inflation as
the economy grows.
Name – Sam Morgan

OBJECTIVES: OBJECTIVES: OBJECTIVES: OBJECTIVES:

 Focusing on growth and  Focus on maintain  Focus mainly on  More optimistic.
profit maximisation. revenue levels. survival.  Likely to focus on
 Break even.  Possibly cash flow. maintain cash flow.
MARKETING:  Cash flow.
 Strategies to maintain MARKETING: MARKETING:
or increase market MARKETING :  Low-cost strategy to  Maintaining or
share.  Strategies to boost boost sales. increasing market
sales – possibly price share.
PRODUCTION: reductions. (Risky) PRODUCTION:
 Aim to keep up with  Minimise stock holding. PRODUCTION:
demand. PRODUCTION:  Reduce capacity.  Utilising more capacity.
Actions taken by functional  Capacity Utilisation will  Reduce stock holding.  NOT INCREASING YET.
areas: rise.  Possibly start looking at HR:
Objectives reducing capacity.  Reducing hours. HR:
Marketing HR:  Voluntary/compulsory  Managing overtime for
Production  Manage recruitment to HR: redundancies. existing staff.
Human Resource Management ensure that vacancies  Likely to reduce the  Looking at workforce
Finance are filled. workforce (via natural FINANCE: plan to identify
 May be occupied with wastage).  Zero budgeting. vacancies.
managing overtime - NOT REPLACING  Budget holders have to
budget. PEOPLE WHEN THEY justify all spending FINANCE:
 Staff my request pay LEAVE. decision.  Setting tight budgets
rises.  Rationalise – sell off  With scope for growth.
FINANCE: unused assets.
FINANCES:  Setting tighter budgets.
 Increasing budgets  Reducing bad debts. RIDING THE STORM.
 Control spending.  Looking to reduce
 Aim to meet increasing credit terms to
levels of demand. customers.

Mrs Osborne: Page - 2

Name – Sam Morgan

1. Summarise the main taxes collected by the government in the UK.

Income tax applies to all individuals where a percentage of their monthly income is taxed at a certain rate depending
on where it falls in the tax bands.

Corporation tax applies to all businesses that make a profit – where a government claim a percentage of their net
profit.

National insurance is paid by everyone and covers the cost of public services (such as schools, NHS, and other
infrastructure).

VAT (Value added tax) is collected by the government on most goods where an additional 20% is added to the price
of the product.

2. What is fiscal policy?

Fiscal policy refers to government spending and taxation. These should balance out to stabilise the economy and
prevent inflation.

3. How can government spending and taxation act as an automatic stabiliser in the economy?

Government spending and taxation should balance out (as there is a negative correlation). This stabilises the
economy by reducing the risk of inflation in a time of boom and supporting the economy in a recession.

4. What is monetary policy?

Monetary policy refers to the interest rates set by the bank of England which are set depending on the state of the
economy.

5. How can monetary policy be used to stabilise the economy?

In the time of a boom, interest rates can be set high to encourage people to save. This slows the economy and
reduces the risk of inflation. In the time of recession, interest rates can be set low to encourage people to spend
more. This should boost the economy and prevent a slump.

6. What are exchange rates?

How much one currency is compared to another. EG: £1 = $0.75. The value of the pound compared to other
currencies. The cost of changing currencies.

7. How may British businesses be affected if Brexit leads to a fall in the value of the pound?

The exports will be cheaper; however the imports will be more expensive. This means it will be easier to export goods
to other countries but harder to import.

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Name – Sam Morgan

8. What is inflation?

Inflation is where the Pound is devalued as the economy grows too quickly.

9. Explain benefits and drawbacks of inflation.

BENEFITS:

As the value of the pound falls, exports will become cheaper – therefore making it easier for businesses to export
goods overseas.

DRAWBACKS:

As the value of pound falls, imports will become more expensive – therefore making it harder for businesses to import
goods from overseas.

10. What is protectionism and why do governments use it?

Protectionism is where the government intervene to impose rules on free trade. The main aim of protectionism is to
cushion domestic businesses and industries from overseas competition and prevent the outcome resulting solely from
the interplay of free market forces of supply and demand.

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