6.1 Economic Issues

2026 Syllabus Objectives

By the end of this topic, you should be able to:

6.1.1 – Business Cycle

  1. Describe the main stages of the business cycle: growth, boom, recession, and slump
  2. Explain the impact on businesses of changes in employment levels, inflation, and GDP

6.1.2 – Government Control Over the Economy

  1. Identify government economic objectives (e.g. increasing GDP)
  2. Explain the impact of changes in taxes and government spending on businesses
  3. Explain the impact of changes in interest rates on businesses
  4. Describe how businesses might respond to these changes

Part 1: The Business Cycle

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What is GDP?

Gross Domestic Product (GDP) is the total value of all goods and services produced in a country in one year. Think of it as a scoreboard for how well a country's economy is doing. When GDP goes up, the economy is growing — more things are being made and sold. When GDP falls, the economy is shrinking.

The Business Cycle

Economies do not grow at a steady, constant rate. Instead, they go through ups and downs over time. This pattern of rising and falling economic activity is called the business cycle.

Imagine a wavy line on a graph. The highs represent good times, and the lows represent difficult times. There are four main stages:

Stage 1: Growth

During the growth stage, GDP is rising steadily.

  • More goods and services are being produced
  • More people are in employment (i.e. more people have jobs)
  • People earn more money, so they spend more
  • Businesses sell more and earn higher profits
  • Companies invest in new equipment and hire more staff

Think of it like this: The economy is like a car picking up speed — things are going well and improving.

Stage 2: Boom

A boom is when the economy is growing very fast — almost too fast.

  • GDP is at its highest point
  • Consumer incomes and business profits are very high
  • Almost everyone who wants a job has one (low unemployment)
  • However, there is a downside: inflation (prices rising) is also high because people are spending so much that demand pushes prices up
  • There are shortages of skilled workers, so businesses have to pay higher wages to attract staff

Think of it like this: The car is going so fast it might overheat.

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