The economic cycle and its phases. Phase characteristics.
The economic cycle - it is a movement from one crisis to another. In the classical cycle, four phases are distinguished, successively replacing each other: crisis, depression, revival and recovery. In each of the phases, there is a different dynamics of the volume of production, the level of prices, the employment of workers, the rate of profit, etc.
1. An economic crisis is a drop in production, the destruction of the productive forces of society and the simultaneous adjustment of the size of production to the scale of effective demand. Due to the limited purchasing power of the population, a situation arises when the produced goods become more than they can be sold. First of all, the surplus of goods is formed in the 2nd division. Prices are falling. The inability to sell the goods and return the advanced capital leads to the fact that a lot of enterprises are closed. Most of the debt obligations are not repaid, many enterprises declare themselves bankrupt. Entrepreneurs are in dire need of money. But they are not. Loan interest rises Operating enterprises are sharply reducing the volume of production. Unemployment is on the rise. Wages are being cut. Prices continue to decline. To stop their fall, goods are physically destroyed. The size of production is reduced to the level of effective demand. In addition, crises are characterized by disruption of credit ties, falling stock prices, panic on the stock exchanges and a wave of bankruptcies.
2. Depression is a phase characterized by:
stagnation in production
sluggishness of trade
the presence of free money capital.
It is at this stage of the crisis that the prerequisites for growth are formed, and commodity stocks are absorbed. Entrepreneurs strive to restore profitability through an increase in labor productivity and capital productivity. During this period, the capital stock is renewed.
After a crisis, depression sets in. During a depression, the economy adapts to new conditions imposed by the crisis. This phase is characterized by the suspension of the decline in production and its fluctuations At a low level. A reduction in the volume of production in the phase of the crisis, the destruction of part of commodity stocks, as well as a drop in prices contribute to the gradual dissipation of accumulated commodity stocks. The growth of exports of goods and capital abroad acts in the same direction. The need to adjust to low prices encourages entrepreneurs to reduce production costs. This is achieved through technical Improvements, through the renewal of fixed assets. The renewal of fixed capital generates demand for equipment, gives rise to incentives to expand production. This creates the prerequisites for the transition to a new phase of the cycle - the phase of revival.
3. The depression is usually replaced by a revival - the phase when enterprises, having recovered from the crisis, bring the volume of production to the previous level. At this stage, the growth of prices and profitability accelerates.
The recovery phase is characterized by the fact that enterprises recover from shocks and begin to expand production. In this phase, prices increase, the profit of entrepreneurs grows, and an additional number of workers are involved in production. Achievement of production volume equal to the pre-crisis level means a transition to the next phase of the cycle - recovery.
4. Rise phase - the phase of the cycle when production exceeds the high point reached in the previous cycle.
During the upswing phase, the size of production is steadily increasing. Unemployment is reduced to a minimum. The effective demand of the population is growing mainly due to the growth of wages in connection with the increase in employment. Investment costs are increasing. The country is booming.
Economic crises have two sides. One of them is destructive - it is associated with breakdown, with the elimination of abnormal proportions in the national economy. The other side is wellness. The need for periodic renewal of fixed capital is the material basis of the economic cycle. However, this factor should not be overestimated. The renewal of fixed capital is fraught with new dangers for society, because in parallel with this process, there is a process of accumulation of negative indicators of the state of the economy, which, undoubtedly, will again lead the country to a crisis.
The cycles are not alike, each of them has its own characteristics in terms of duration and intensity. Therefore, some economists talk about economic fluctuations rather than cycles. Cycles, in contrast to fluctuations, imply the regularity of disturbance and restoration of equilibrium in the economy. There is no single reason for cyclical development. The nature of the cycle, its duration, the specificity of manifestation is largely determined by the ratio of internal (endogenous) and external (exogenous) factors affecting it. External factors include all circumstances that lie outside the economic system: wars, social revolutions, major natural disasters, external expansion, the development of new markets. Each economic system has its own internal mechanism that generates cyclicality. Among the internal factors generating the economic cycle, economists distinguish: the turnover of fixed capital, investment, scientific and technological progress and the use of its achievements, the dynamics of the conjuncture, the economic policy of the state.
The historical experience of world economic development has shown that development is not proceeding in a straight line, gradually and evolutionarily gaining height. The economic development of industrialized countries over the past two centuries has shown that the macroeconomic equilibrium is constantly disturbed and that the process of economic development itself is an alternation of evolutionary and revolutionary periods. Prominent Austrian economist Joseph Schumpeter (1883-1950) synthesized equilibrium and non-equilibrium stages of economic development and proposed a three-cyclical scheme of oscillatory processes in the economy, which are carried out, as it were, at three levels of the market economy. These are short, medium and long economic cycles.
Short cycles, lasting about 4 years, are associated with the movement of inventories. When the size of real investment in fixed capital increases, the accumulation of inventories often outstrips the need for them: their supply outstrips demand. In this case, the demand for them falls, a state of recession arises (from the Latin. Recessus - retreat), in which there is a slowdown in production growth or even a recession. Thus, short cycles are associated with the restoration of equilibrium in the consumer and investment markets. The economic literature is called “Kitchin Cycles” after the English economist and statistician Joseph Kitchin (1861-1932).
Average cycles, often referred to as industrial cycles, last 8-12 years. In its classic version, the industrial cycle contains four phases, which successively replace one another: crisis, depression, recovery and recovery.
The four-phase structure of the industrial cycle in economics was introduced by K. Marx:
The first phase (1) is a crisis, the main symptom of which is a decline in production;
The second phase (II) is a depression when the volume of production no longer falls, but does not grow either;
The third phase (III) - revival: the growth of production begins, continues until the volume of the pre-crisis period is reached;
The fourth phase (IV) is an upswing, during which the further progressive development of production continues.
There are also medium-term cycles of European scientists who call such cyclical changes differently: “recession”, “recession”, “recovery”, “boom”, “peak”, etc. These cycles are usually associated with the name of the French physicist and economist Clement Juglar (1819-1908) and are called “Juglar Cycles”.
In the second half of the XX century. The average cycles have undergone significant changes: the overproduction processes began to be accompanied by rising prices and inflation. The reasons for these phenomena lie in monopoly pricing, when monopolies reduce production, but keep prices high, as well as in excessive government spending, which implies additional emission of money.
Long cycles, or long waves, the pattern of which was substantiated by the Russian economist Nikolai Dmitrievich Kondratyev (1892-1938), are caused by the fact that the market economy at the industrial stage of its development goes through successively alternating periods of slow and accelerated growth. During a period of slower growth, industrial cycles are characterized by deeper crises, prolonged depression, and weaker upturns. The duration of each such cycle is about half a century. N. D. Kondratyev suggested that scientific and technological progress is an endogenous factor of this long-term cyclicality (from the Greek endo - inside + from the Greek gemos - genus, origin). The main reason for these cycles lies in the mechanism of capital accumulation, and this is ensured by technological progress and structural changes.
One should also pay attention to construction cycles lasting 17-18 years, which are often called “S. Kuznets' cycles”. American economist and statistician Simon Kuznets (1901-1985) came to the conclusion that indicators of national income, consumer spending, foreign exchange investments in equipment, buildings, and others carry out interrelated twenty-year fluctuations. The main reason for these fluctuations is the renovation of dwellings and certain types of production facilities.
Causes of cyclical in economics and countercyclical regulation
The following directions of development of the cyclical nature of the economy can be recognized as traditional.
1. The monetary theory is caused exclusively in monetary relations, in the financial sphere.
2. The theory of overaccumulation - in the disproportionate development of industries producing industrial goods in relation to industries producing consumer goods, i.e. in investment. At the same time, they forget about consumption, about the reverse influence of consumer demand on investment.
3. The theory of underconsumption - in excessive savings, since they lead to a decrease in demand for consumer goods, and in a depression, the savings cannot be used for investment; the main attention of the supporters of this theory is paid to the consumer goods market.
4. Psychological theory - in the factors of pessimism and optimism in the propensity to consume or save.
5. Extreme theory (from Lat. Externus - external, outsider) - in external factors: wars, revolutions, major scientific discoveries, population migration, development of new territories, etc.).
6. The theory of acceleration - in the effect of the accelerator, in the fact that an increase in demand for consumer goods generates a valuable reaction that multiplies the demand for equipment.
7. The influence of the state on the cyclical development of the economy is also significant. One of the goals of the state's economic policy is to stabilize economic growth. Carrying out anti-crisis and countercyclical policies is yielding results - = fluctuations become predictable and less profound, which reduces the loss of the national product. 8. Cospic theory proposed by the American economist, statistician and philosopher William Jevons (1835-1882) - in the periodicity of spots on the sun, leading, in his opinion, to crop failure and general economic recession.
Countercyclical policies generally focus on one of two directions of regulation: neo-Keynesian or neo-conservative.
1. Keynesian direction focuses on the regulation of aggregate demand. Proponents of this policy pay great attention to the budget (mainly due to an increase or decrease in government spending) and taxes (manipulation of tax rates depending on the state of the economy).
2. Proponents of neo-conservative prescriptions pay great attention to the problem of money and credit. Therefore, in recent years, neoconservative policy has been based on monetary theories, which put the issues of the volume of the money supply and its regulation at the forefront.
In general, countercyclical regulation is a set of government measures to influence the economic cycle in order to smooth out the economic situation. The main goals of these measures are to ensure full employment and reduce inflation.
So in the phase of crisis and recession, all measures of the state should be aimed at maintaining and stimulating business activity; in the phase of recovery and boom, the state pursues a policy of containment in order to prevent the "overheating" of the economy.
Source - Yallay V.A. Macroeconomics. Pskov, PSPI, 2003.104 p.
In this topic, it is necessary to understand the reasons for fluctuations in economic activity in the short term and the state's ability to prevent a decline in production.
1. Types of economic cycles and their causes.
2. The economic cycle and its characteristics.
3. State countercyclical regulation.
Any market system is subject to cyclical fluctuations, which are expressed in periodic ups and downs not only in industrial production, but also in the development of the economy as a whole. These changes in economic conjuncture called macroeconomic instability or cyclical development of a market economy, which are characterized by the following signs: the presence of fluctuations, i.e., a change in positive dynamics (growth) by negative dynamics (decline); the frequency of oscillations, i.e., wave-like dynamics, expressed through oscillations following one after another; the presence of a repeating unit in the fluctuations - a cycle.
Economic cycle- this is the period of time during which the recession and rise of economic (business) activity take place.
It should be noted that cyclical fluctuations, which are periodic in nature, must be distinguished from trend - long-term trend of economic development... This difference can be represented graphically (Fig. 27), where cyclical fluctuations are shown by a wavy solid line, and the trend is shown by a straight dashed line.
Modern economics counts more than a thousand types of cycles. The most common is the classification of economic cycles by duration, in which three types of cyclical fluctuations are usually distinguished:
Short-term cycles with a frequency of 3.5-4 years;
Medium-term cycles with a frequency of 8-10 years;
Long-term cycles with a frequency of 48-55 years.
Short-term cycles also called J. Kitchin's cycles - after the name of their author. These are now more commonly known as inventory cycles. Kitchin's cycles are about disrupting and rebalancing the consumer market. Each cycle ends with a new equilibrium with already changed proportions in the demand for consumer goods. Kitchin's cycles are explained by the time lag between the allocation of investments and the introduction of new instruments of labor, as a result of which equilibrium is restored. Most modern economists who support the idea of the existence of short-term economic cycles tend to view them as an integral part of the general cyclical system, which is based on medium-term economic cycles.
Medium term cycles- these are the cycles of R. Zhuglyar, to which the greatest attention is paid in the study of macroeconomic instability, since the government policy is mainly aimed at smoothing out precisely these cyclical fluctuations. These cycles also have other names: "industrial cycle", "business cycle", "business cycle", "classic cycle". The first crisis (crisis of overproduction) as the beginning of the classical cycle occurred in England in 1825, and since 1857 such crises have become global. In the period before the Second World War, these cycles lasted 10-12 years, and now they are 8-10 years. Most economists see the main reason for these cycles in the renewal of fixed capital. Most accurately, business cycles - fluctuations in investment spending, GDP, inflation and unemployment - are described by the model of cyclical fluctuations of the French economist R. Juglar.
Long term cycles- long waves Kondratieva, or large conjuncture cycles, were named after the outstanding Russian economist N.D. Kondratyev. He suggested that the most devastating crises occur when the downtrend points of the long-wave and medium-term cycles coincide. Examples of such economic conditions are the crisis of 1873 and the Great Depression of 1929-1933.
Studying the development of European countries over a period of 100-150 years, Kondratyev identified three large cycles:
1st cycle - from the beginning of the 90s. XVIII century until the middle of the 19th century.
2nd cycle - from the middle of the 19th century. until 1890-1896
3rd cycle - from 1896 to 1940-1945.
Moreover, in his cycles, Kondratyev distinguished two phases- upward and downward. He showed that before the upward phase there is a revival in the field of technical inventions, after which, at the stage of industrial growth, their mass introduction into production. He showed the relationship of scientific and technological progress with the development of a large cycle. Kondratyev explained the main reason for the existence of large cycles by different periods of functioning of various economic goods (consumer goods, tools of labor, buildings), the production of which needs to spend different time, especially in order to accumulate capital for their creation.
Thus, large cycles arise on the basis of capital accumulation for the creation of new infrastructure. In this regard, the material basis of "long waves" is a change in technological structures.
Technological order- a system of methods prevailing in the country for solving a certain type of technological problems and devices that ensure the implementation of these methods.
The theory of long or large cycles is of particular importance, since it makes it possible to predict the development of a market system far ahead and, therefore, to increase its adaptability, cushioning future shocks.
The nature of the cycle, the duration and specificity of its individual phases is greatly influenced by the reasons that are due to two groups of factors: external and internal. Accordingly, they distinguish between exogenous and endogenous theories of the economic cycle.
Endogenous theories explain the economic cycle as a product of internal factors inherent in the economic system itself.
These internal economic factors include:
The physical life of the fixed capital (every 10-12 years in the 19th century and every 7-8 years in the 20th century, the fixed capital is renewed, since technical progress is constant, therefore, within the specified periods, the fixed capital becomes physically and morally obsolete and must be replaced) ;
Activation or decline in consumer activity;
Innovation;
The economic policy of the state, expressed in direct and indirect impact on production, demand and consumption.
Attempts to explain the economic cycle using only exogenous or endogenous theories did not give success, since changes in an economic system of this scale cannot be caused only by external or only internal factors. Therefore, most scientific economists explain the economic cycle by the synthesis of both, that is, external factors give an impetus to the cycle, and internal ones lead to phase-by-phase fluctuations. All in all, all of these reasons can be boiled down to one main reason.
The main reason for business cycles is the mismatch between aggregate demand and aggregate supply, between aggregate spending and aggregate output. Therefore, the cyclical nature of economic development can be explained by: either a change in aggregate demand with low aggregate supply (an increase in aggregate spending leads to an increase, their reduction leads to a recession); or a change in aggregate supply with constant aggregate demand (a reduction in aggregate supply means a recession in the economy, its growth means a rise).
Economic cycle - regularly recurring fluctuations in the levels of production, total income, employment, inflation. The economic cycle consists of the following phases: crisis, depression, recovery, recovery. The phase of the crisis, which begins and ends the cycle, is of prime importance. It expresses the main features and contradictions of the cyclical process of reproduction.
Business cycle phases
A crisis - this is a sharp violation of the existing balance as a result of growing imbalances. Initially, there is a reduction in demand and an excess of supply. Marketing difficulties lead to a reduction in production and an increase in unemployment. The decline in the purchasing power of the population further complicates marketing. The volume of GNP and the level of production are decreasing. All economic indicators are declining. There is a drop in the levels of real wages, profits, investments, prices. Due to the death of capital in the form of unsold goods, firms lack funds for current payments, so the loan payment, that is, the interest rate, grows rapidly. Securities prices are falling, there is a wave of bankruptcies and mass closings of enterprises. The crisis ends with the onset of depression.
It should be emphasized that there is a certain time gap between saving and investment. Some time also passes between investing and making a profit from them. Decisions to increase savings and investment levels are made by different economic agents. With a decrease in demand, it is inappropriate to increase the level of investment and expand production.
Depression (or stagnation) : a certain stabilization occurs in this phase. Supply and demand reach a certain balance. The fall in macroeconomic indicators - GNP, the volume of industrial production stops. Prices, wages, unemployment stabilize at a certain level. The lending rate goes down as business activity is low and the demand for money is relatively low.
Revitalization : this phase is characterized by a period of slow growth after some stabilization. This phase of the cycle, as a rule, is not pronounced, with a clear beginning, but all economic indicators reflecting the state of the economy receive a positive growth trend. Prices, employment, wages, profits, and the interest rate on loans are gradually increasing. The revival turns into a recovery phase.
Rise : there is an increase in all macroeconomic indicators. Rising prices are offset by rising wages and profits, the entire volume of output is absorbed by growing demand, employment increases, and labor resources become a limiting factor in further development. The boom phase after a while reaches a high point, which is called prosperity (or boom). During this period, demand is growing rapidly, high employment leads to growing incomes of households, which are beginning to actively buy apartments, cars, expensive home appliances, pay for recreation and tourism. To cover current expenses, estimated deferred income is used, that is, most large purchases are made on credit. The economy draws additional resources into production, causing higher costs and higher prices. Imbalances between supply and demand are growing. The boom is cut short by the crisis again.
The development cycles of social production can be classified according to their duration. It is necessary to highlight short, medium and long term cycles.
Short-term cycles- these are fluctuations in the market situation, changes in the supply-demand ratio under the influence of, for example, seasonal factors. Such cycles are especially evident in agricultural production, hospitality and tourism.
Medium term cycles- these are the cycles of reproduction of fixed capital and the corresponding changes in the market situation. It should be emphasized that the nature of changes in medium-term economic cycles largely depends on which phase of the long-term cycle they correspond to.
Long term cycles or "long waves". For the first time, the concept of long waves was proposed by the Russian scientist N.D. Kondratyev in the 20s. 20th century. He suggested that successive periods of accelerated and decelerated growth can be distinguished in the development of the economy, with an average duration of about 50 years. N. D. Kondratyev called them "long waves". Based on a large empirical material containing data for 140 years, he identified and analyzed three cycles of the economic environment, containing "upward" and "downward waves".
An upward wave - from the end of the 80s. 18th century to the period 1810-1817;
A downward wave - from the period 1810-1817. until the period 1844-1851.
An upward wave - from the period 1844-1851. up to the period 1870-1875;
A downward wave - from the period 1870-1875. until the period 1890-1896.
An upward wave - from the period 1890-1896. until the period 1914-1920.
A downward wave - from the period 1914-1920.
Thus, Kondratyev practically predicted the onset of the Great Depression in Western countries, and his theory explains the deepening crises in the 60s and 70s. 20th century. He drew the following conclusions:
at the beginning of the upward wave, significant changes take place in the economic life of society, which are expressed in profound changes in technology and technology, in changes in the conditions of monetary circulation, in the strengthening of the role of new countries in the world economy;
there are many more major social upheavals and upheavals during upswings than during downswings;
downward waves are accompanied by a prolonged depression in agriculture;
medium-term economic cycles falling on a downward period of a large cycle are characterized by the duration and depth of depressions, brevity and weakness of ups; medium-term cycles falling on an upward period are characterized by the opposite features.
The main provisions of the theory of N.D. Kondratiev contradicted the ideas of the mournful death of capitalism that existed at that time and therefore were not recognized. Kondratyev himself was repressed in the 30s. In the West, his ideas were highly appreciated. Austrian economist Joseph Schumpeter called long-term cycles “Kondratieff cycles”.
The reason for the pulsating, undulating development is scientific and technological progress. Its development and, mainly, implementation are discrete. This is because the markets periodically reach a saturation state in which further sales are possible only to replace the disposed goods. Then the results of scientific and technological progress are introduced, which fundamentally change both the characteristics of the goods themselves and the technology of their production. Such changes in the material basis of production Schumpeter calls "basic innovations." They stimulate the growth of production, which first encompasses the leading sectors, and then the entire national economy. The restructuring of the economy is underway.
The business cycle permeates everywhere, but affects different sectors of the economy in different ways. Typically, the downturn affects the capital goods industries (buildings, machinery, equipment) and consumer durables. The same industries experience the most favorable impact of the boom phase, they are relatively less responsive to the production cycle and employment in industries that produce goods and non-durable services.
The main reason for the entire economic cycle is the level of total costs. When overall costs are insufficient, then incentives for producers are reduced. Hence the low level of production and employment. A higher level of general expenditures contributes to the growth of income and production.
The causes of the crisis can be divided into external and internal. External causes include wars, revolutions, political events of an international scale, negative changes in the climate (drought, floods), crisis phenomena in the economies of developed or neighboring countries, a shortage of external resources, sharp changes in the exchange rates of national currencies, world prices, violations in international contractual obligations. The internal causes of the crisis include the extreme limitedness of internal resources, the prevailing imbalances between industries or regions, the closed nature of the national economy, the inability or inexperience of the authorities in state regulation of the economy, the instability of the national currency, subjectivity in government decision-making, unfair distribution and redistribution of income in society.
Depending on the nature of economic recessions, their coverage of various or sectors of the national economy, it is necessary to distinguish between the following types of economic crises: cyclical, intermediate, structural, partial, sectoral.
Cyclical crisis overproduction covers all spheres and sectors of the economy: it displaces obsolete equipment, reduces production costs, and brings the structure of production into conformity. This type of crisis, upsetting the existing equilibrium, leads to the creation of a new equilibrium with more efficient production. As a result, the next cycle begins on a qualitatively new basis.
Intermediate crisis , unlike cyclical, is not long and deep, does not cover all spheres and is local in nature. It is a temporary reaction to emerging contradictions and imbalances in the economy, interrupting for some time the phases of recovery or recovery. As a result of this crisis, the contradictions are somewhat softened and the cyclical crisis turns out to be less deep and destructive.
Partial crisis can occur both during the recovery phase and during the period of depression or recovery. It affects any specific area of the economy. For example, the financial crisis of 1997, which began in the fall on the stock exchanges of Southeast Asia, affected the monetary and credit sphere in almost all countries and served as one of the causes of the 1998 banking crisis. in Russia.
Industry crisis arises as a result of the action of both external factors (for example, the rise in prices for raw materials and energy carriers at the beginning of the 21st century, cheap imports, an influx of workers - emigrants), and internal (aging of industries, the emergence of new ones, changes in the sectoral structure). It covers related sectors of the economy.
Structural crisis covers, as a rule, several economic cycles. Its reason is the need for radical changes in the structure of production on a new technological basis. These are, for example, the energy, raw materials, food crises of the 70-80s. 20th century.
Seasonal crises caused by the impact of natural and climatic factors that violate the accepted rhythm of economic activity. In particular, a delay in the onset of spring could trigger a crisis in the utilities sector due to lack of fuel.
World crises determined by the coverage of both individual industries and spheres of economic activity on a global scale, and the entire world economy.
More than 1380 types of cyclicality are known to modern social science. The most frequently mentioned ones are shown in the table below.
Blacksmith's cycles. In the 1930s, research on the so-called "construction cycle" emerged in the United States. J. Righolman, W. Newman and some other analysts built the first statistical indices of the total annual volume of housing construction and found in them long intervals of rapid growth and deep recessions or stagnation following one after another. Then the term "construction cycle" appeared, defining these twenty-year fluctuations. After the publication of Kuznets' work, the term "construction cycle" practically ceased to be used, giving way to the term "long vibrations" in contrast to Kondratyev's "long waves". In 1955. in recognition of the merits of the American researcher, it was decided to call the "construction cycle" the "Kuznets cycle."
Zhuglar cycles. First of all, economic science singled out a cycle of 7-12 years, which was later named Zhuglar. However, this cycle has other names: "business cycle", "industrial cycle", "middle cycle", "big cycle". The first industrial cycle broke out in England in 1825, when machine production took a dominant position in metallurgy, mechanical engineering and other leading industries. The crisis of 1836 arose first in England and then spread to the United States. The crisis of 1847-1848 erupted in the United States and a number of European countries, in fact, was the first world industrial crisis. It was followed by the crises of 1857 and 1866. The most profound was the crisis of 1873. If in the 19th century the industrial cycle was 10-12 years, then in the 20th century its duration was reduced to 7-9 years or less: the crises of 1882,1890,1900,1907. The economic crises of 1920-1921, 1929-1933, 1937-1938 had the most destructive effect on the economy. Among them, the "Great Depression" of 1929-1933 stands out, characterized by a particularly deep and prolonged decline in production.
After the Second World War, industrial crises occurred in 1948-1949, 1953-1954, 1957-1958, 1960-1961, 1969-1970, 1973-1974, 1981-1982, and the most destructive crisis was the mid-70s.
The cycle of 7-12 years was named after K. Juglar (1815-1905) for his great contribution to the study of the nature of industrial fluctuations in France, Great Britain and the United States based on fundamental analysis of fluctuations in interest rates and prices. As it turned out, these fluctuations coincided with investment cycles, which in turn triggered changes in GNP, inflation and employment.
Kitchin's cycles(inventory cycles). Kitchin focused his attention on the study of short wavelengths from 2 to 4 years based on the study of financial accounts and sales prices during the movement of inventories.
Kondratieff cycles... The first attempts to create a theory of "long waves" were undertaken at the dawn of the 20th century by A. Gelfand (Parvus), J. Van Gelder and S. de Wolf. However, the greatest contribution was made by the Russian scientist N.D. Kondratyev (1892-1938), who published several fundamental works in this area. He presented the results of his research concerning the dynamics of commodity price indices, interest rates, rent, wages, production of the most important types of products for a number of developed countries from 1770 to 1926.
Kondratyev associated the beginning of the "big" rise with the massive introduction of new technologies, with the involvement of new countries in the world economy, with changes in the volume of gold production. At the same time, the overall picture of the rise was described as follows: the introduction of technical innovations goes in parallel with the expansion of the investment process, which in turn stimulates production and demand, which contribute to the rise in prices. During this period, unemployment decreases, wages and labor productivity rise. These processes affect the entire economy and change the lifestyle of people. Evidence that the economy is approaching the high point of the big cycle is the shortage of certain goods, which begins against the background of abundance, shifts in the structure of income distribution, an increase in production costs, and a slowdown in the growth of profits. A situation now known as stagflation arises.
There are various explanations for the reasons for the depletion of the lifting energy. Some see them in a noticeable increase in the consumption rate, others - in a change in the purchasing power of money, while others associate the achievement of the "peak" with the life cycle of products and industries, the creation of which was the result of major innovations of the past years.
Each “big” upswing is followed by a rather short period, when the economy prepares for the coming long recession, but at the same time there is a semblance of prosperity: people are still full of hope, borrow easily. Since the real situation is no longer the same, there is a pile-up of debt, which threatens to collapse at any moment. This inevitably happens, and the impulse can come from a minor event
The rise of the first big cycle Kondratyev associated with the industrial revolution in England, the second - with the development of railway transport, the third - with the introduction of electricity, telephone and radio, the fourth - with the automotive industry. Modern researchers associate the fifth cycle with the development of electronics, genetic engineering, microprocessors.
cyclical economic development kazakhstan
Business cycle concept
In reality, the economy does not develop according to the trend that characterizes economic growth, but cyclically - through constant deviations from the trend, through recessions and ups (Fig. 4.2).
Economic (or business) cycle (business cycle) represents periodic ups and downs in the economy, fluctuations in business activity. These vibrations irregular and difficult to predict, therefore, the term "cycle" is rather arbitrary.
There are two extreme points of the cycle (Fig.4.2, a): point peak(reaction) corresponding to the maximum business activity; point bottom(trough), which corresponds to the minimum of business activity (maximum decline).
Rice. 4.2. The economic cycle and its phases
Business cycle phases
The cycle is usually divided into two phases:
recession phase, or recession(recession), which lasts from peak to bottom. A particularly long and deep recession is called depression(depression) It is no coincidence that the crisis of 1929-1933. received the name of the Great Depression;
lifting phase, or revitalization(recovery), which continues from bottom to peak.
There is another approach, in which four phases are distinguished in the economic cycle (Fig. 4.2, b), but extreme points are not distinguished, since it is assumed that when the economy reaches a maximum or minimum of business activity, then a certain period of time (sometimes quite long) she is in this state:
Phase I - boom(boom) at which the economy reaches its maximum activity. This is the period over-employment(the economy is above the level of potential output, above the trend) and inflation.(Recall that when the actual GDP in the economy is higher than the potential GDP, then this corresponds to the inflationary gap.) The economy in this state is called "overheated"(overheated economy);
Phase II - recession(recession or slump) - business activity begins to decline, the actual GDP reaches its potential level and continues to fall below the trend, which leads the economy to the next phase - the crisis;
Phase III - a crisis(crisis), or stagnation (stagnation), the economy is in a state of recessionary gap, because the actual GDP is less than potential. This is a period of underutilization of economic resources, i.e. high unemployment;
IV phase - revival, or recovery, the economy gradually begins to recover from the crisis, the actual GDP approaches its potential level, and then surpasses it until it reaches its maximum, which will again lead to a boom phase.
Reasons for economic cycles
In economic theory, the causes of economic cycles were declared to be a variety of phenomena: the level of solar activity; wars and revolutions; insufficient consumption; high rates of population growth; optimism and pessimism of investors; changes in the supply of money; technical and technological innovations; price shocks, etc. The theory has recently become widespread political business cycle(political business cycle), proposed by the American economist William Nordhaus, which links the cyclical fluctuations of the economy with the presidential election calendar. If, during the election period, the country experiences a favorable economic situation (low unemployment and low inflation), it is beneficial for the president at the very beginning of his term in office to destabilize the economy, for example, provoke a recession in order to ensure economic recovery and prosperity by the end of the presidency and be elected for the next term.
In fact, all of these reasons can be boiled down to one main reason. The root cause of business cycles - the mismatch between aggregate demand and cumulative supply, between total costs and total production. Therefore, the cyclical nature of economic development can be explained by either and changes in aggregate demand with a constant aggregate supply (an increase in aggregate spending leads to an increase, their reduction leads to a recession); or change in aggregate supply with constant aggregate demand (a reduction in aggregate supply means a recession in the economy, its growth means an upturn).
Behavior of macroeconomic indicators during the cycle
Consider how macroeconomic indicators behave at different phases of the cycle, provided that the cause of the cycle is a change in aggregate demand (aggregate costs).
In the boom phase, a moment comes when the entire volume of output produced cannot be sold, i.e. the total cost is less than the output. Overstocking occurs, and firms are forced to increase their unsold inventory (inventories), leading to curtailment of production and rising unemployment as firms begin to lay off workers. As a result, total incomes fall (household incomes due to unemployment, firms' incomes due to the inability to sell part of the output), and, consequently, total costs are reduced. Households reduce demand for durable goods. Firms reduce investment demand due to the senselessness of expanding production in the face of falling aggregate demand. A decrease in total revenues (taxable base) reduces tax revenues to the state budget. The total amount of government transfer payments is increasing (unemployment benefits, poverty benefits). The state budget deficit is growing. Due to the fall in total income, imports are reduced, which may lead to an increase in net exports and the emergence of a trade surplus. By trying to sell their products, firms may begin to lower prices for them, which leads to a decrease in the general price level, i.e. deflation (in Fig. 4.3, and output is reduced to Y 1, and the price level falls from P 0 to P 1).
Faced with the inability to sell their products even at lower prices, firms (as rational economic agents) can:
or buy more efficient equipment and continue production the same type of goods(if the demand for them is not saturated), but with lower costs, which will reduce the prices of products without reducing the amount of profit, and will also provide an opportunity to increase sales;
or, if the demand for the goods produced by the firm is fully saturated and even a decrease in prices does not lead to an increase in sales, go to production a new type of goods, which will require technical re-equipment, i.e. replacement of old equipment with fundamentally new ones.
And in fact, and in another case the demand for investment goods is increasing. In the industries producing investment goods, recovery begins, employment increases, and the profits of firms grow. Aggregate incomes are rising, leading to increased demand and increased production in consumer goods industries. Recovery, increased employment (lower unemployment) and higher incomes are spreading across the entire economy. The economy is on the rise. The price level is rising. Tax revenue is increasing. Transfer payments are being reduced. The state budget deficit is decreasing, and a surplus may appear. Growth in income leads to an increase in imports, a decrease in net exports and the possible emergence of a deficit in the balance of payments. The rise in the economy, the growth of business activity turn into a boom, into the "overheating" of the economy ( Y 2 in fig. 4.3, a), after which another decline begins.
The basis of the business cycle is the change in investment costs. Investment is the most volatile part of aggregate demand (aggregate spending).
The cycle can be represented graphically using the model AD- AS (fig. 4.3). In fig. 4.3, a shows the economic cycle due to changes in aggregate demand (aggregate costs), and Fig. 4.3, b - changes in the aggregate supply (aggregate output).
In conditions when the economic downturn is caused not by a reduction in aggregate demand (aggregate spending), but a decrease in the aggregate supply, most indicators (real GDP, unemployment rate, total income, stocks of firms, sales, firm profits, tax revenues, volume of transfer payments, etc.) behave in a similar way. The exception is the indicator of the general price level, which rises as the recession deepens (Fig. 4.3, b). This is a situation of stagflation (point C in Figure 4.3, b) - a simultaneous decline in production (from Y* to Y 1) and an increase in the price level (from R 0 before R 1). Investments also form the basis for overcoming such a recession, since they increase the capital stock in the economy and create conditions for the growth of aggregate supply (curve shift SRAS 1 right to SRAS 0 ).
Rice. 4.3. The economic cycle in the model AD- AS
Business cycle indicators
The main indicator of the phases of the cycle is the annual GDP growth rate(growth rate - g), which is expressed as a percentage and is calculated by the formula
Thus, this indicator characterizes the percentage change in real GDP (total output) in each next year. (Y t ) compared to the previous (Y t - 1), i.e. in fact, this is not a growth rate, but GDP growth rate. If g - positive value (g > 0), this means that the economy is in a boom phase, and if negative (g < 0), then in the decay phase. This indicator is calculated for one year and characterizes the rate economic development- short term(annual) fluctuations in actual GDP, in contrast to the average annual growth rate ( g a - annual growth rate), characterizing the rate economic growth, those. long-term trend of increasing potential GDP.
Depending on the behavior of economic values at different phases of the cycle, indicators are distinguished:
procyclical, which increase in the boom phase and decrease in the recession phase (real GDP, total revenues, sales, firm profits, tax revenues, stock prices, imports);
countercyclical, which increase in the recession phase and decrease in the recovery phase (the unemployment rate, the volume of transfer payments, the size of the inventories of firms, the amount of net exports, the state budget deficit, etc.);
acyclic, which are not cyclical, and the value of which is not related to the phases of the cycle (export volume).
