Business organisation and environment

Table of Contents

1. Topic pack - introduction
2. 1.1 Nature of business activity - notes
3. 1.1 Nature of business activity - questions
4. 1.2 Types of organisation - notes
5. 1.2 Types of organisation - questions
6. 1.3 Organisational objectives - notes
7. 1.3 Organisational objectives - questions
8. 1.4 Stakeholders - notes
9. 1.4 Stakeholders - questions
10. 1.5 External environment - notes
    1. External environment
    2. Introduction - PEST/STEP analysis
    3. The legal and political environment - introduction
    4. The legal environment
    5. Political stability and instability
    6. The social and cultural environment - introduction
    7. Social responsibility
    8. Demographic trends
    9. The technological environment - introduction
    10. The Internet and the World Wide Web (www).
    11. E-commerce
    12. Technological change
    13. The ecological environment
    14. The economic environment - introduction
    15. Economic growth
    16. The Business Cycle
    17. Inflation
    18. Exchange rates
    19. Unemployment
    20. Interest rates
    21. Government fiscal policy
11. 1.5 External environment - questions
12. 1.5 External environment - simulations and activities
13. 1.6 Organisational planning tools - notes
14. 1.6 Growth and evolution - notes
15. 1.7 Growth and evolution - questions
16. 1.7 Growth and evolution - simulations and activities
17. 1.6 Change (HL only) - notes
18. 1.9 Globalisation - notes
19. 1.9 Globalisation - questions
20. Print View

The Business Cycle

The business cycle is an alternative name for the trade or economic cycle, so these terms are often used interchangeably.

Figure 1 below shows a possible business cycle.

Figure 1 A Business Cycle

Changes in the business cycle seem to be caused by a number of factors, or more realistically, by several of the following happening in the same time period:

• Changes in what is known as business confidence. When a business is confident about the future it is more likely to invest in new capital, such as buildings. When confidence is low, new investment is often postponed, and indeed a firm may sell fixed assets if demand for their products is falling.
• If it appears consumer demand is about to fall, businesses will de-stock and sell what they have without replacing all that is bought by consumers. This means a fall in output. If the business cycle is thought to be moving upwards then business will restock in preparation for increased demand - this increases output.
• Changes in government policies, which are thought to be either causing the economy to expand or contract. A set of policies designed to increase economic growth (e.g. a cut in interest rates) will normally increase business confidence, whilst policies designed to say control inflationary pressures (e.g. increases in taxation or interest rates) will cause business confidence to fall. Following the recent recession, many governments are looking to cut their deficits by reducing spending. This is likely to lead to an economic downturn.
• Changes in consumer behaviour, which are often the result of other macro factors. An increase in interest rates might cause consumer confidence to fall and have an impact on business confidence. A period of high employment might have the opposite effect.

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• Business cycle

For managers of businesses, the key point to remember about the business cycle is that it has existed for over 150 years, so when an economy looks especially positive, it should be remembered that a recession may follow and the business should prepare for this in the 'good times'. The same should apply to governments. The UK chancellor in 2007 claimed in his last budget before becoming Prime Minister that because of his economic policies, the UK "would never return to the old boom and bust". The deep global recession that soon followed proved that the business cycle is alive and kicking!

The effect and implications of the business cycle

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• The effect and implications of the business cycle

With globalisation comes increasing economic interdependence, where the problems in one country may quickly ripple outwards to other regions of the world.