The business cycle Cambridge IGCSE Business Studies revision
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In plain words
The whole economy moves in waves. For a few years output and spending climb, and business is easy. Then they stall and fall, and customers disappear. No business can stop these waves, but each one has to get through them.
The pattern is called the business cycle.
6 things to know
- Growth: output (GDP) is rising, unemployment is falling, and sales and profits rise.
- Boom: the peak. Spending is high and businesses are at full capacity, skilled workers are hard to find so wages rise, and prices start to rise.
- Recession: output falls. Demand drops, unemployment rises and profits fall.
- Slump: a long and severe recession, with very high unemployment and many businesses failing.
- Higher unemployment means consumers spend less, but workers are easier and cheaper to hire. Higher inflation raises a business's costs. Rising GDP means rising incomes and more sales.
- Businesses selling luxuries feel a recession most. Those selling essentials or cheap alternatives feel it least.
Tips and tricks
- Say which kind of business you mean. A recession is bad for a jeweller and can be good for a discount store.
- In a boom the problem is not finding customers. It is finding workers and keeping costs down.
It lands in your notebook with its questions as flashcards.
The business cycle: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
In which stage of the business cycle is output falling?
Falling output is what defines a recession.
Which is a problem for businesses during a boom?
Every firm wants more staff at the same time.
Which business is likely to suffer least in a recession?
People still have to buy essentials.
What is a slump?
Output stays low and unemployment very high for a long time.
How might high unemployment benefit a business?
Many people are looking for work, so vacancies are easy to fill.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
The business cycle
Cambridge IGCSE Business Studies 0450 · 8 marks · papermunch.org
Name ______________________________ Date ______________
State the four main stages of the business cycle.[2]
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Growth, boom, recession and slump.
Explain two effects of a recession on a business that sells luxury cars.[3]
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Incomes fall and people worry about their jobs, so fewer luxury cars are bought and revenue falls. The business may have to cut its prices or its workforce to survive.
Explain one advantage and one disadvantage to a business of a boom.[3]
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Advantage: consumers have more to spend, so sales and profits are high. Disadvantage: skilled workers are scarce, so the business has to pay higher wages, which raises its costs.
Answers: The business cycle
- 1. Growth, boom, recession and slump.
- 2. Incomes fall and people worry about their jobs, so fewer luxury cars are bought and revenue falls. The business may have to cut its prices or its workforce to survive.
- 3. Advantage: consumers have more to spend, so sales and profits are high. Disadvantage: skilled workers are scarce, so the business has to pay higher wages, which raises its costs.