easuring The State Of The UK Economy And Its Effects On Honda.

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Unit 38 – P1

Economic Environment

Every country will have their own economy which has features that can be measured in different ways to see how they are changing. The economic environment of a country has significant effect on its businesses, as the trade that his happening between that country and other countries affect how much money is passing in and out of the country. This then affects the cost of goods and prices.

Honda, a Japanese car maker has invested £267m into its Swindon plant based in the UK. The plant is to produce 183,000 cars the first year with the output forecast to rise to 250,000 within three years. About 500 workers have been recruited for this totalling the workforce to 3,500.

Business Cycle

When economists make judgements about then economy, they use a number of different indicator to measure how the country compared it another point in time for example, the previous month/year. They also use indicators so they can make judgements about the UK economy compared to other economies around the world. The business cycle shows how we can expect to see increases and falls in the production, income and expenditure of the country over a period of time. Economists use specific terms to describe different parts of the business cycle (Growth, Boom, Slowdown, Recession, and Recovery/Growth).

The UK economy moves between boom and recession over time because during a boom the demand for products eventually gets so high that manufacturers and other suppliers cannot satisfy it. This leads to rising prices. As costs rise, including those paid to employees for wages, as most people will be employed the result is rising inflation. People may also borrow more, so the demand for credit also goes up and becomes more expensive.  Honda is going through a boom period right now as they have the money to invest and as they also employed 500 more members to work at their plant. This means the demand for their cars was high as they had to employee more people.

Eventually with so many costs increasing, the price of products or services becomes so high that demand starts to fall as people are unable to pay for them. This will then lead to productivity falling as businesses do not need to make as many products or offer as many services and start to cut costs. They may at this point start to reduce selling prices to try to increase demand. Profits also start to fall. Then unemployment starts to go up and the government has to spend more money on benefits and methods of creating a demand for products or services to try to prevent unemployment levels from getting higher. If costs in Honda or other business go up then people will not be able to pay for the cars as they will not have enough money which will result in the business to cut costs such as losing employees.

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Once an economy has reached recession, it can be difficult for it to get out of because of the cycle of the recession itself. The most usual way for an economy to be stimulated to recover from recession is by some form of external stimulus, perhaps from the government or another investor. If Honda was to get in recession, it would be very hard for them to get out of it as they are a big business and will have to most likely find external investors to invest in the business.


Knowing the different stages of the ...

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