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External Influences on Business Activity - Coggle Diagram
External Influences on Business Activity
Economic Issues
Balance of Payments:
The difference between a country's exports and imports of goods and services. A favorable balance of payment occurs when a country's exports exceed its imports,the opposite will lead to an unfavorable balance
An unfavorable balance of payment, can lead to a decrease in domestically produced goods and services, which can have a negative impact on business activity.
In contrast, a favorable balance of payment can lead to an increase in demand for domestically produced goods and services, which can have a positive impact on business activity.
Unemployment:
Refers to the number of individuals who are willing and able to work but are unable to find employment. Unemployment can have a negative impact on businesses activity.
When unemployment rates are high, people tend to have less disposable income to spend, which might lead to a decrease in demand
Conversely, when unemployment rates are low, people tend to have more disposable income to spend on goods and services, leading to increased demand, which can have a positive impact on businesses
Inflation:
Refers to the rate at which the general price level of goods and services in an economy is increasing. Inflation can affect businesses as it may lead to higher costs of production and lower purchasing power for consumers.
When price level of goods and services increases, businesses may need to increase their prices to mantain profit margins, which can lead to a decrease in demand for their products.
A low and stable inflation, can provide a more predictable economic envirornment for businesses, which can have a positive impact on their planning and investment decisions.
Economic Growth:
The increase in the production of goods and services in an economy over time. The GDP (gross domestic product) shows if an economy is growing or not.
An increase in GDP is usually connected to increased business activity, as they may see an increase in demand for their products or services.
It is important to note that economic growth can also lead to increased competition and inflationary pressures, which can have both positive and negative impacts on businesses.
Business Cycle
Growth:
The growth stage of the business cycle is typically characterized by increasing economic activity, rising employment, and expanding business profits. During this stage, the economy is recovering from a downturn, and consumer confidence and spending increase.
During this stage, businesses tend to experience increased demand for their goods and services, which leads to higher sales, increased profit and expansion opportunities.
This growth can also lead to inflationary pressures, such as higher input costs and rising interest rates, which can negatively impact a business's bottom line.
Boom:
The boom stage of the business cycle is a period of rapid economic growth and expansion, where the economy is operating at or above its full potential, with high levels of consumer spending, business investment, and job creation.
During a boom, businesses tend to experience high levels of economic activity, which can lead to increased sales and profits, expansion opportunities, and improved access to financing.
A boom can also lead to rising costs and competition for resources, such as labor and materials. Additionally, if a business becomes too reliant on the boom stage, it may struggle to adapt during the subsequent stages of the business cycle.
Recession:
The recession stage of the business cycle is a period of economic contraction and declining activity, characterized by high levels of unemployment, reduced consumer spending, and declining business profits.
During a recession, businesses tend to experience decreased demand for their goods and services, which can lead to lower sales, reduced profits, and layoffs.
A recession can present opportunities for businesses to adapt and innovate, such as by developing new products or entering new markets.
Slump:
The slump stage of the business cycle is a severe and prolonged period of economic contraction, typically characterized by high levels of unemployment, low levels of consumer and business spending, and a general lack of economic activity. During a slump, many businesses may go bankrupt, and asset values can decline sharply.
During a slump, businesses tend to experience very low levels of economic activity, which can lead to reduced sales, decreased profits, and potentially even bankruptcy. The lack of demand for goods and services can also result in increased competition and pressure on prices.
Businesses can take steps to mitigate the negative impacts of a slump, such as by reducing costs and improving efficiency. Additionally, businesses that are able to weather the slump may be better positioned to take advantage of opportunities when the economy begins to recover