Economic Factors: GDP

• Gross domestic product GDP

  GDP is a measure of economic activity, the total value of a countries output over a given period of time.
• There is economic growth is there’s an increase in GDP. If GDP is increased, the economy is growing
• GDP statistics are usually presented in ’real terms’, real meaning after removing the effects of inflation. There is a difference between real compared to actual values.
• GDP and the Business Cycle

  The business cycle is the regular pattern of ups and downs in demand and output within an economy, or of GDP growth over time. It is characterised by 4 main phases, boom, recession, slump and recovery. (Slump means more severe than recession)
• Vulnerability to change

  SOME firms are more vulnerable to changes in the business cycle and GDP. Some are known as cyclical business because demand for their products fluctuates closely in line with the business cycle. eg, a business that sells milk is not vulnerable to changes in the business cycle as it is a necessity rather than a luxury, which would be affected.
• Income Elasticity of Demand

  The extent to which a business is affected by the business cycle depends on the income elasticity of demand for its products, influenced by changes in income. In recession, income on average are lower as people are less able to afford to spend money on luxuries.
• Possible Causes of the Business Cycle


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• PHases of business cycle 


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• Possible causes of the business cycle: Changes in Confidence

  • Changes in business confidence affect investment in fixed assets. High confidence leads to increased investment to meet expected sales growth, boosting orders for fixed asset producers. Low confidence results in canceled or delayed orders, with businesses opting to use existing assets longer instead of replacing them.Changes in business confidence affect investment in fixed assets. If business confidence is high, that means that business are optimistic about the future.
• Possible causes of the business cycle: Stock

  • Periods of stock or inventory building, and then de stocking. Again, these depend on the confidence of a business in its ability to sell inventory
• Possible causes of the business cycle: Patterns of expenditure

  • irregular patterns of expenditure on consumer durables, such as cars, washing machine and televisions (these are usually paid for using a credit card or loan). These are influenced by the level of interest rates and consumer confidence in the economy (consumer confidence can be high or low, if high, people are optimistic about the future, eg, Job security, wage increase over time.) and by the need to replace old items
• In the 2008 financial crisis, some businesses had high rates of growth, mostly businesses that sold inferior goods such as LIDL, and Poundland
• Destocking


  Destocking is when a business attempts to reduce its holding of inventory by cutting order of materials or by cutting production levels , usually undertaken at the beginning of a recession when orders begun to fall as during a recession, businesses place smaller orders.
• Possible causes of the business cycle: Bank Confidence 


  Confidence in the banking sector and its ability to make sound decisions about whom to lend money too. When banks have insufficient funds to meet the demand of their depositors, they’re more likely to call in loans. This has a knock on effect on businesses and consumers.
• Recession


  Recession is where there is 2 consecutive quarter of negative economic growth.