Slump is the point of the business cycle where the economy is not doing very well. There is less production being made for things that are needed for the ASDA, such as goods and luxuries. In slump, interest rates will be high as lots of people will be borrowing money. This will result in people having more debts, which will take longer for them to pay off, and will prevent them from spending money on things they want, including food. Also in the case of slump, unemployment will be an issue, meaning people will have less money to spend on luxury products, so a drop in our customers may occur resulting in less people using the supermarket and a negative effect on our profit. This will also affect the supermarket directly as we will have less money to fund the buying of new goods, and may have to loose members of our staff as we may not have the money to pay for them to work for us, or be specially trained if this is necessary.
Unemployment rates in the case of slump are high and there is a lack of skilled workers as they would already have been employed by other businesses. This is not very good for ASDA as we would have to spend considerable amounts of money training staff up to appropriate standards to be able to do the job in hand. Inflation is a general rise in prices, or fall in the value of money. It means that year after year, 100 buys gradually less and less. When inflation rates are high then the costs for ASDA products will increase and this will eventually have to be transferred to the consumer, this might put off potential consumers- reducing its market and ultimately profits.
Wage-price spiral Price increases lead to higher wage demands as workers seek to maintain their real living standards. If ASDA puts it prices up for higher profit margins, then automatically employees would want to have their wages increased as well. This process is known as a wage-price spiral. Rising inflation leads to a build-up of inflation expectations that can worsen the trade-off between unemployment and inflation. Inflation can also disrupt the business planning. Budgeting becomes difficult and this may reduce planned capital investment spending. Inflation is also a possible cause of higher unemployment.
Fear of excess borrowing by customers/rising interest rates. If there are high taxes then the prices will also affect how ASDA prices its products. The business will have to pay tax so when the taxes increases there will be less money for investment. Direct tax affects the amount of money people will spend, taxation by government will also further increase its expenses; this will reduce the profit level of our business, which obviously isn’t favourable for ASDA. However if inflation increases as well as consumers income, then it will most probably diminish or cancel the extra cost pressures. It will also reduce disposable income- reduce consumer spending, and reduce benefits from financial investment.
The business will be in a slump if too many people are borrowing money. Firstly ASDA will get affected by the borrowing money that would be through an increase in sales with customers having more money; however the government is trying to discourage people from borrowing money and to do that they increase the interest rates. This will affect our business because our customers would be thinking of paying the bank back before they decide to purchase our luxury products. When the economy is in slump, production levels are low and we do not require a large amount of employees this means overall all employment levels are low.