© Business Studies Online

What Happens at Each Stage?

•Firms lower prices

•Factories are closed

•Many redundancies occur

•Increasing number of bankruptcies

•High unemployment

•Low levels of spending

Recession

•Firms look for new markets

•Workers are laid off

•Many firms close

•Demand is low

•Investment falls

•Profits fall

Slowdown

•Prices likely to rise

•Wage rise

•Demand is expected to fall

•Inflation increases

•Some firms unable to satisfy demand

•Interest rates rise

Boom

•Opportunity to increase prices

•New businesses start

•Increasing consumer spending

•Production rises

•Investment increases

Recovery/

Expansion

Likely Reactions by BusinessesKey FeaturesStage of

Business Cycle

© Business Studies Online

Many businesses are affected by the business cycle.

The Effect of the Cycle On Firms

Fresh VegetablesHousehold Furniture

Cigarettes

JewelleryPetrol

Restaurant MealsBread

Sports and Leisure Goods

Coal

Wine

Products largely

unaffected by the

Business Cycle

Products significantly

affected by the

Business Cycle

Can you explain why

some goods are affected by the Business Cycle,

whilst others are not?