Summary IGCSE Business: Economic issues

Business igcse (0450)


Section 6 External influences on business issues
Economic issues

Businesses cannot control every factor in the business
environments, there will be external factors that affect the
business and the business has no control over it. For example:
inflation, environmental factors such as earthquakes

The main stages of the business cycle
Economic growth may not be achieved every year – often
years where the value of Gross Domestic Product (GDP)
actually falls.
Growth – GDP is rising, unemployment is falling and the
country has higher living standards.

Boom – This is caused by too much spending. Prices start
rises, business costs go up

Recession – caused by too little spending. This is a period
where the GDP may fall. There will be a fall in demand and
profits

Slump – A serious and long-drawn-out recession.
Unemployment reaches a high and many business don’t
survive this period
These four main stages of the business cycle otherwise known
as the trade cycle

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A government will try to avoid the economy moving towards a a
slump, but will also want to reduce the chances of a boom. A
boom with rapid inflation and higher business costs can often
lead to the conditions that result in a recession.

Impact on businesses of changes in employment, inflation and
GDP
Changes in employment - If unemployment is rising, the
business has more people to recruit for their business, but
consumer income levels may fall because they may have lost
their job, which cuts down on spending, which may reduce
business profits.

Rising inflation may result in business costs increasing. Prices
of products may increase because the costs of production
increased. This may result in consumers having less profits to
spend on other products.