Economic cycle
The concept of the economic cycle
Economic cycle - a special type of periodic fluctuations in economic activity, consisting of a repeated expansion and contraction of the economy, accompanied by fluctuations in the level of business activity, production, employment, price levels, and others macroeconomic indicators. Economic cycles may differ in duration, intensity and other parameters, nevertheless the first researchers of cyclicality noticed that all cycles have the same clearly defined stages (phases).
Types of economic cycles
Classify economic cycles according to their duration:
- centennial cycleswhose duration is a hundred years or more;
- "Kondratieff cycles"which last 50-70 years. They get their name from the outstanding Russian economist N.D. Kondratiev, who developed the theory of "long waves of economic conjuncture;
- classical cyclesThe main reason for this is the fact that the economy has been in a state of crisis for 10-12 years, characterized by a massive renewal of fixed capital;
- Kitchin cyclesThe duration of which is two to three years.
Phases of the economic cycle
- Pic - is the highest point of the country's business activity. At this stage of the economic cycle, unemployment is close to minimum levels, and the economy is maximally loaded and all of the country's resources are utilized.
- After the peak always comes Decline (depression), which is characterized by a gradual decline in production and a decline in business activity. Recession or recession of the economic cycle is recognized by economists only when the period of stagnation lasts more than six months. During this time, unemployment is on the rise and industry is extremely weak.
- Bottom - the lowest point of the downturn of the economic cycle, which heralds its imminent end. True, there are exceptions: the Great Depression of the 1930s is an example.
- Rise of the economic cycle reflects the flourishing of the country's economy and is accompanied by an increase in employment and production.
What are the causes of the economic cycle?
The causes of cyclical economic development can be divided into external and internal.
External causes:
- wars, because of which the economy is rearranged to produce military products, attracts additional resources and manpower, and when the warfare ends, a recession sets in;
- the impact of some other external factors, such as the so-called oil shocks, when the oil-producing countries united into one cartel - OPEC - and sharply increased oil prices, which caused the largest global crisis in the postwar period in 1974-1975, in which the U.S. production fell for 16 months and amounted to about 5%;
- major innovations (railroads, automobiles, electronics) that have a major impact on investment, production, consumption, and price levels.
Internal causes:
- monetary policy The government: a lot of money creates an inflationary boom, while not enough money reduces investment and leads to a decline in production;
- a change in the ratio of aggregate supply to aggregate demand, when, for example, radically new goods appear (personal computers) and demand shifts to them, while producers of old goods (typewriters) have to shut down production and shift resources to other industries;
- a reduction in production caused by the output of commodity products, i.e., the accumulation of large stocks due to low demand or high prices, when trade refuses goods that it cannot sell, and aggregate supply exceeds aggregate demand.
How long does the economic cycle last?
The cycles are divided according to their duration:
- short cyclesThe period of the economic crisis, which is associated with the restoration of economic equilibrium in the consumer market, with fluctuations in wholesale prices and changes in the stocks of firms. Their duration is 2-4 years;
- medium cyclesThe duration of these periods is 10-15 years; they are associated with a change in the investment demand of enterprises, with the long-term accumulation of production factors and improvement of technology. Their duration is 10-15 years;
- long cycles (waves)The duration is 40 to 60 years, and they are associated with discoveries or important technical innovations and their dissemination. Their duration is 40-60 years.