Theme 2 Topic 5 - Economic Influences Flashcards
Define The Business Cycle
Shows the stages in economic activity through period of boom. recession, slump and recovery
Define GDP (Gross Domestic Product)
A measure of total economic activity
Define Recession
2 consecutive quarters of negative economic growth
When the economy is growing…
… Business and consumer confidence rises leading to increased spending
During a recession, economic growth is…
Negative
What are the four stages of the business cycle?
Boom, Recession, Slump, Recovery
Define Inflation
The increase in general prices in an economy
What does inflation measure?
The rate at which average prices are rising
What is inflation measured by?
The Consumer Prices Index (CPI)
What do high rates of inflation lead to for businesses?
Increased costs, Lower profit margins if keep prices the same, Menu Costs
Define Menu Costs
When firms have to constantly reprint menus due to rising costs (inflation)
What do low rates of inflation lead to for businesses?
Business confidence as costs are more predictable
Define Deflation
Occurs when the CPI is falling (the average price level is falling)
What may consumers do due to deflation?
Delay purchase as they feel prices may fall further
Define Interest Rates
The cost of borrowing money
