Economic cyclicality of the phase of the economic cycle. Business cycle: concept, phases, causes and types

Fluctuations in economic activity (economic conditions), consisting of repeated contraction (economic downturn, recession, depression) and expansion of the economy (economic recovery). Cycles are periodic, but usually irregular. Usually (within the framework of neoclassical synthesis) they are interpreted as fluctuations around the long-term trend of economic development.

The deterministic point of view on the causes of economic cycles comes from predictable, well-defined factors that are formed at the stage of recovery (recession factors) and recession (recovery factors). The stochastic point of view proceeds from the fact that cycles are generated by factors of a random nature and represent the reaction of the economic system to internal and external impulses.

Usually isolated four main types economic cycles:

Kitchin short-term cycles(characteristic period - 2-3 years);
medium-term Juglar cycles(characteristic period - 6-13 years);
Kuznets rhythms (characteristic period - 15-20 years);
Kondratieff long waves(characteristic period - 50-60 years).

Phases

Business cycles have four relatively clearly distinguishable phases: peak, decline, bottom (or “nadir”) and recovery; but to the greatest extent these phases are characteristic of Juglar cycles.

Business cycles in the economy

Climb

The rise (revival) occurs after reaching the lowest point of the cycle (bottom). Characterized by a gradual increase in employment and production. Many economists believe that this stage is characterized by low inflation rates. Innovations are being introduced in the economy with a short payback period. The demand deferred during the previous recession is being realized.

Peak

The peak, or top of the business cycle, is the “high point” of an economic expansion. In this phase, unemployment usually reaches its lowest level or disappears completely, production capacities operate at or near maximum load, that is, almost all the material and labor resources available in the country are used in production. Typically, although not always, inflation increases during peaks. The gradual saturation of markets increases competition, which reduces profit margins and increases the average payback period. The need for long-term lending is increasing with a gradual decrease in the ability to repay loans.

Recession

A recession (recession) is characterized by a decrease in production volumes and a decrease in business and investment activity. As a result, unemployment increases. Officially, a decline in business activity lasting more than three months in a row is considered a phase of economic decline, or recession.

Bottom

The bottom (depression) of the economic cycle is the “low point” of production and employment. It is believed that this phase of the cycle usually does not last long. However, history also knows exceptions to this rule. The Great Depression of the 1930s, despite periodic fluctuations in business activity, lasted 10 years (1929-1939).

A characteristic feature of cyclical development is that it is, first of all, development, and not fluctuations around a certain constant (potential) value. Cyclicality means development in a spiral, not in a vicious circle. This mechanism of progressive movement in its various forms. The economic literature emphasizes that cyclical fluctuations occur around the trajectory of long-term growth (secular trend).

Causes

The theory of real business cycles explains recessions and recoveries by the influence of real factors. In industrial countries, this may be the emergence of new technologies or changes in prices for raw materials. In agricultural countries - harvest or failure. Also, force majeure situations (war, revolution, natural disasters) can become an impetus for change. Anticipating a change in the economic situation for better or worse, households and firms en masse begin to save or spend more. As a result, aggregate demand decreases or increases, retail trade turnover decreases or increases. Firms receive fewer or more orders for the manufacture of products, and production volume and employment change accordingly. Business activity is changing: firms begin to reduce the range of products they produce or, on the contrary, launch new projects and take out loans for their implementation. That is, the entire economy fluctuates, trying to reach equilibrium.

In addition to fluctuations in aggregate demand, there are other factors that influence the phases of the economic cycle: changes depending on the changing seasons in agriculture, construction, the automotive industry, seasonality of retail trade, secular trends in the economic development of the country, depending on the resource base, size and structure of the population , proper management.

Impact on the economy

The existence of the economy, as a set of resources for steadily growing consumption, has an oscillatory nature. Fluctuations in the economy are expressed in the business cycle. The “delicate” moment of the economic cycle is considered to be a recession, which, at some scale, can turn into a crisis.

The concentration (monopolization) of capital leads to “wrong” decisions on the scale of the economy of a country or even the world. Any investor strives to receive income from his capital. The investor's expectations for the amount of this income come from the rise-peak stage, when income is maximum. At the stage of recession, the investor considers it unprofitable for himself to invest capital in projects with a profitability lower than “yesterday’s”.

Without such investments, production activity is reduced, and as a consequence, the solvency of workers in this sphere, who are consumers of goods and services in other spheres. Thus, the crisis of one or more industries affects the entire economy as a whole.

Another problem of capital concentration is the withdrawal of the money supply (money) from the sphere of consumption and production of consumer goods (also the sphere of production of the means of production of these goods). Money received in the form of dividends (or profits) accumulates in investors' accounts. There is a lack of money to maintain the required level of production, and as a consequence, a decrease in the volume of this production. The unemployment rate is growing, the population is saving on consumption, and demand is falling.

Of the economic sectors, the service sector and non-durable goods industries are somewhat less affected by the devastating effects of an economic downturn. The recession is even helping to intensify some types of activity, in particular increasing the demand for the services of pawnshops and lawyers specializing in bankruptcy. Firms producing capital goods and durable consumer goods are most sensitive to cyclical fluctuations.

Not only are these firms the hardest hit by a business downturn, but they also benefit the most from an economic recovery. There are two main reasons:

the ability to postpone purchases;
market monopolization.

The purchase of capital equipment can most often be postponed to the future; During difficult economic times, manufacturers tend to refrain from purchasing new machinery and equipment and constructing new buildings. During a prolonged downturn, firms often choose to repair or upgrade outdated equipment rather than spend heavily on new equipment.

As a result, investment in capital goods declines sharply during economic downturns. The same applies to durable consumer goods. Unlike food and clothing, the purchase of a luxury car or expensive household appliances can be postponed until better times. During economic downturns, people are more likely to repair rather than replace durable goods. While sales of food and clothing also tend to decline, the decline is typically smaller compared to the decline in demand for durable goods.

Monopoly power in most capital goods and durable consumer goods industries stems from the fact that the markets for these goods are typically dominated by a few large firms. Their monopoly position allows them to keep prices the same during economic downturns, reducing production in response to falling demand. Consequently, falling demand has a much greater impact on production and employment than on prices. A different situation is typical for industries producing short-term consumer goods. These industries typically respond to falling demand by lowering prices overall, since no single firm has significant monopoly power.

History and long cycles

Business cycles are not truly "cyclical" in the sense that the length of the period from, say, one peak to another has fluctuated significantly throughout history. Although economic cycles in the United States lasted on average about five years, cycles lasting from one to twelve years were known. The most pronounced peaks (measured as percentage increases above trend in economic growth) coincided with the major wars of the 20th century, and the deepest economic declines, excluding the Great Depression, occurred after the end of the First World War.

At the end of the 20th century, the American economy appeared to have entered a period of prolonged decline, as evidenced by several economic indicators, in particular the level of real wages and the level of net investment. However, even with a long-term downward trend in growth, the US economy continues to grow; Although the country recorded negative GDP growth in the early 1980s, it remained positive in all subsequent years except 1991.

Symptomatic of the long-term recession that began in the 1960s, although growth rates have rarely been negative, the level of economic activity in the United States has almost never exceeded trend growth since 1979.

It should be noted that along with the described economic cycles, the theory also distinguishes long cycles. Long cycles in the economy are economic cycles lasting more than 10 years. Sometimes called by the names of their researchers.

Investment cycles(7-11 years old) studied by Clement Juglar. These cycles, apparently, make sense to consider as medium-term, rather than long-term.

Infrastructure investment cycles(15-25 years old) was studied by Nobel laureate Simon Kuznets.

Kondratieff cycles(45-60 years old) was described by Russian economist Nikolai Kondratiev.

It is these cycles that are most often referred to as “long waves” in economics.

Kitchin cycles

Kitchin cycles- short-term economic cycles with a characteristic period of 3-4 years, discovered in the 1920s by the English economist Joseph Kitchin. Kitchin himself explained the existence of short-term cycles by fluctuations in world gold reserves, but in our time such an explanation cannot be considered satisfactory. In modern economic theory, the mechanism for generating these cycles is usually associated with time delays (time lags) in the flow of information that influence decision-making by commercial firms.

Firms react to improving market conditions by fully utilizing their capacity, the market is flooded with goods, after some time excessive stocks of goods are formed in warehouses, after which a decision is made to reduce capacity utilization, but with a certain delay, since information about the excess of supply over demand itself is usually received with a certain delay, in addition, it takes time to verify this information; It also takes some time to make and approve the decision itself.

In addition, there is a certain lag between the decision-making and the actual reduction in capacity utilization (it also takes time to implement the decision). Finally, another time lag exists between the moment the level of production capacity utilization begins to decline and the actual resorption of excess stocks of goods in warehouses. In contrast to the Kitchin cycles, within the Juglar cycles we observe fluctuations not just in the level of utilization of existing production facilities (and, accordingly, in the volume of inventory), but also fluctuations in the volume of investment in fixed capital.

Juglar cycles

Juglar cycles- medium-term economic cycles with a characteristic period of 7-11 years. They are named after the French economist Clément Juglar, who was one of the first to describe these cycles. In contrast to the Kitchin cycles, within the framework of the Juglar cycles we observe fluctuations not just in the level of utilization of existing production facilities (and, accordingly, in the volume of inventory), but also fluctuations in the volume of investment in fixed capital. As a result, in addition to the time delays characteristic of Kitchin cycles, there are also time delays between the adoption of investment decisions and the construction of the corresponding production facilities (as well as between the construction and the actual launch of the corresponding capacities).

An additional delay is formed between the decline in demand and the liquidation of the corresponding production capacity. These circumstances determine that the characteristic period of Juglar’s cycles turns out to be noticeably longer than the characteristic period of Kitchin’s cycles. Cyclical economic crises/recessions can be considered as one of the phases of the Juglar cycle (along with the phases of recovery, recovery and depression). At the same time, the depth of these crises depends on the phase of the Kondratieff wave.

Since no clear periodicity is observed, an average value of 7-10 years was taken.

Phases of the Juglar cycle

In the Juglar cycle, four phases are often distinguished, in which some researchers distinguish subphases:

revival phase (start and acceleration subphases);
phase of recovery, or prosperity (subphases of growth and overheating, or boom);
recession phase (subphases of collapse/acute crisis and recession);
phase of depression, or stagnation (subphases of stabilization and shift).

Rhythms of the Blacksmith

Blacksmith cycles (rhythms) last approximately 15-25 years. They were called Kuznets cycles after the American economist and future Nobel Prize winner Simon Kuznets. They were opened by him in 1930. Kuznets associated these waves with demographic processes, in particular the influx of immigrants and building changes, so he called them “demographic” or “building” cycles.

Currently, a number of authors consider Kuznets’ rhythms as technological and infrastructural cycles. As part of these cycles, there is a massive update of core technologies. In addition, large cycles of real estate prices coincide well with the Kuznets cycle using the example of Japan from 1980-2000. and the duration of the large half-wave of rising prices in the United States.

There was also a proposal to consider Kuznets rhythms as the third harmonic of the Kondratieff wave. There is no clear periodicity, so researchers take an average of 15-20 years.

Kondratieff cycles

Kondratiev cycles (K-cycles or K-waves) are periodic cycles of the modern world economy lasting 40-60 years.

There is a certain connection between long-term Kondratiev cycles and medium-term Juglar cycles. Such a connection was noticed by Kondratiev himself. Currently, there is an opinion that the relative correctness of the alternation of upward and downward phases of Kondratieff waves (each phase is 20-30 years) is determined by the nature of the group of nearby medium-term cycles. During the upward phase of the Kondratieff Wave, the rapid expansion of the economy inevitably leads society to the need for change. But the possibilities for changing society lag behind the demands of the economy, so development moves into a downward B-phase, during which crisis-depressive phenomena and difficulties force a restructuring of economic and other relations.

The theory was developed by Russian economist Nikolai Kondratiev (1892-1938). In the 1920s he drew attention to the fact that in the long-term dynamics of some economic indicators there is a certain cyclical regularity, during which phases of growth of the corresponding indicators are replaced by phases of their relative decline with a characteristic period of these long-term fluctuations of about 50 years. Such fluctuations were designated by him as large or long cycles, later called Kondratieff cycles by J. Schumpeter in honor of the Russian scientist. Many researchers also began to call them long waves, or Kondratieff waves, sometimes K-waves.

The characteristic wave period is 50 years with a possible deviation of 10 years (from 40 to 60 years). Cycles consist of alternating phases of relatively high and relatively low rates of economic growth. Many economists do not recognize the existence of such waves.

N. D. Kondratyev noted four empirical patterns in the development of large cycles:

Before the start of the upward wave of each major cycle, and sometimes at the very beginning of it, significant changes are observed in the conditions of the economic life of society.
Changes are expressed in technical inventions and discoveries, in changes in the conditions of monetary circulation, in the strengthening of the role of new countries in world economic life, etc. These changes to one degree or another occur constantly, but, according to N. D. Kondratiev, they proceed unevenly and are most intensely expressed before the start of upward waves of large cycles and at their beginning.

Periods of upward waves of large cycles, as a rule, are much richer in major social upheavals and upheavals in the life of society (revolutions, wars) than periods of downward waves.
In order to be convinced of this statement, it is enough to look at the chronology of armed conflicts and coups in world history.

The downward waves of these large cycles are accompanied by long-term agricultural depression.

Large cycles of economic conditions are identified in the same unified process of economic development dynamics, in which medium cycles with their phases of recovery, crisis and depression are also identified.

Kondratieff's research and conclusions were based on empirical analysis of a large number of economic indicators of various countries over fairly long periods of time, covering 100-150 years. These indicators are: price indices, government debt securities, nominal wages, foreign trade turnover indicators, coal mining, gold production, lead production, cast iron, etc.

Kondratiev’s opponent, D.I. Oparin, pointed out that the time series of the studied economic indicators, although they give larger or smaller deviations from the average in one direction or another during different periods of economic life, but the nature of these deviations as a separate indicator, and the correlation of indicators does not allow us to distinguish a strict cyclicity. Other opponents pointed out N. D. Kondratiev’s deviations from Marxism, in particular his use of the “quantitative theory of money” to explain cycles.

Over the past 80 years, Nikolai Kondratiev’s theory of Long Waves has been enriched by the theories of creative destruction by I. Schumpeter, the theory of technical and economic cenoses by L. Badalyan and V. Krivorotov, the theory of technological structures developed by academicians S. Glazyev and Lvov, the theory of evolutionary cycles by Vladimir Pantin.

The theory of long waves, as well as Nikolai Kondratiev himself, was rehabilitated by the famous Soviet economist S.M. Menshikov in his work “Long waves in economics. When society changes its skin" (1989).

Dating of Kondratieff waves

For the period after the industrial revolution, the following Kondratieff cycles/waves are usually distinguished:

1 cycle - from 1803 to 1841-43. (moments of minimum economic indicators of the world economy are noted)
2 cycle - from 1844-51 to 1890-96.
3 cycle - from 1891-96 to 1945-47.
4th cycle - from 1945-47 to 1981-83.
5 cycle - from 1981-83 to ~2018 (forecast)
6 cycle - from ~2018 to ~2060 (forecast)

However, there are differences in the dating of the “post-Kondratieff” cycles. Analyzing a number of sources, Grinin L. E. and Korotaev A. V. give the following boundaries of the beginning and end of the “post-Kondratieff” waves:

3 cycle: 1890-1896 - 1939-1950
4 cycle: 1939-1950 - 1984-1991
5 cycle: 1984-1991 - ?

The relationship between Kondratieff waves and technological structures

Many researchers associate the change of waves with technological structures. Breakthrough technologies open up opportunities for expanding production and form new sectors of the economy, forming a new technological structure. In addition, Kondratieff waves are one of the most important forms of implementation of industrial production principles.

The consolidated system of Kondratieff waves and their corresponding technological structures is as follows:

1st cycle - textile factories, industrial use of coal.
2nd cycle - coal mining and ferrous metallurgy, railway construction, steam engine.
3rd cycle - heavy engineering, electric power, inorganic chemistry, production of steel and electric motors.
4th cycle - production of cars and other machines, chemical industry, oil refining and internal combustion engines, mass production.
5th cycle - development of electronics, robotics, computing, laser and telecommunications technology.
6th cycle - possibly NBIC-convergence en (convergence of nano-, bio-, information and cognitive technologies).

After the 2030s (2050s according to other sources), a technological singularity is possible, which is currently not amenable to analysis and prediction. If this hypothesis is correct, then Kondratiev cycles may end closer to 2030.

Limitations of the Kondratiev Model

Kondratieff waves have not yet received final recognition in world science. Some scientists build calculations, models, and forecasts based on K-waves (all over the world and especially in Russia), and a significant part of economists, including the most famous ones, doubt their existence or even deny them.

It should be noted that, despite the importance of the cyclical development of society revealed by N. D. Kondratiev for forecasting problems, his model (like any stochastic model) only studies the behavior of the system in a fixed (closed) environment. Such models do not always answer questions related to the nature of the system itself, the behavior of which is being studied. It is well known that the behavior of a system is an important aspect in its study.

However, no less important, and perhaps even the most important, are aspects of the system associated with its genesis, structural (gestalt) aspects, aspects of the complementarity of the logic of the system with its subject, etc. They allow us to correctly pose the question of the reasons for this or that type of behavior system depending, for example, on the external environment in which it operates.

Kondratiev cycles in this sense are just a consequence (result) of the system’s reaction to the current external environment. The question of revealing the nature of the process of such a reaction today and revealing the factors that influence the behavior of systems is relevant. Especially when many, based on the results of N.D. Kondratiev, A.V. Korotaev and S.P. Kapitsa on the compression of time, predict a more or less rapid transition of society to a period of permanent crisis.

The business cycle is cyclical changes in economic conditions, periodic fluctuations in the level of business activity (employment levels, production and inflation), represented by real GDP. Thus, the economic cycle means the period of economic development between two identical states of the market.

In macroeconomics there is no unified theory of the business cycle; researchers pay attention to different reasons for cyclicality. But most economists propose studying this phenomenon through an analysis of external and internal factors that affect the nature of the cycle, its duration, and the specific manifestations of individual phases.

In the structure of the cycle, the highest and lowest points of activity and the phases of decline and rise lying between them are distinguished. The total duration of a cycle is measured by the time between two adjacent lowest points of activity. Accordingly, the duration of the decline is considered to be the time between the highest and subsequent lowest points of activity, and the rise - vice versa.

The economic cycle is divided into four phases:

1. Recession In this stage, production declines, growth rates become negative, unemployment rises and aggregate demand declines. The moment of crisis in the economic cycle is unexpected for most participants in economic activity, so it is always destructive. At this stage, the market is flooded with goods as demand decreases, but production continues at the same pace, causing inventory to accumulate. During a crisis, securities prices fall and enterprises close en masse - first of all, credit institutions are liquidated, since during the crisis they suffer acutely from massive non-repayment of loans.

2. Depression. National income continues to decline, but the rate of decline is slowing. The economy seems to be frozen in the state it reached during the recession. During depression, only the value of loan interest changes rapidly against the background of general stagnation. It falls because the “surviving” capitalists have free cash as a result of low production costs. Wages are fixed at the lowest point.

3. Revitalization. The transition from a decrease in production to its increase; gradual return of the economy to a state corresponding to equilibrium growth. The fact is that in a state of depression, inventories and prices stabilize. Low prices stimulate consumption and demand. And not only for consumer goods. The crisis showed the technological and technical insolvency of fixed capital. Its replacement begins - the renewal of capital, which means that the phase of revival and gradual growth of the economy has begun. The recovery phase is characterized, first of all, by the expansion of production of means of production. Consequently, the revival impulse begins with enterprises producing equipment and elements of fixed capital. Then, slowly but surely, a picture opposite to the crisis emerges: production expands following the growth in demand, unemployment decreases, and wages rise.

4. Expansion National income grows despite full employment. The demand for investment increases, unemployment decreases below the natural level. The price level, wage rate and interest rate rise. The inevitable consequence of this development is the transition from growth to recession. The criterion for the transition of the economy from recovery to recovery is the achievement of the pre-crisis level of production.

Types of economic cycles:

short-term Kitchin cycles (characteristic period - 2-3 years). Kitchin himself explained the existence of short-term cycles by fluctuations in world gold reserves, but in our time such an explanation cannot be considered satisfactory. In modern economic theory, the mechanism for generating these cycles is usually associated with time delays (time lags) in the movement of information that influence decision-making by commercial firms.;

medium-term Juglar cycles (characteristic period - 6-13 years) Within the Juglar cycles, there are fluctuations not only in the level of utilization of existing production facilities (and, accordingly, in the volume of inventory), but also fluctuations in the volume of investment in fixed capital. As a result, in addition to the time delays characteristic of Kitchin cycles, there are also time delays between the adoption of investment decisions and the construction of the corresponding production facilities (as well as between the construction and the actual launch of the corresponding capacities). An additional delay is formed between the decline in demand and the liquidation of the corresponding production capacity.;

Kuznets rhythms (characteristic period - 15-20 years) Kuznets associated these waves with demographic processes, in particular the influx of immigrants and construction changes, so he called them “demographic” or “construction” cycles. However, modern researchers consider Kuznets rhythms as technological, infrastructural cycles, within their framework there is a massive renewal of basic technologies;

Kondratiev's long waves (characteristic period - 50-60 years) Kondratiev explained the existence of large cycles by different periods of functioning of different economic goods, the production of which also requires different amounts of time. Especially - to accumulate capital for their creation. Thus, large cycles arise based on the accumulation of capital to create new infrastructure. This main reason is superimposed on other, secondary ones. The essence of fluctuations is that the infrastructure of the economy must be in balance with all its other parameters that are characteristic of it at this particular level of development. Violation of this balance means the beginning of a cycle. The recurrence frequency is 45-50 years, as determined by Kondratiev based on an analysis of statistical material. The theory of long, or large, cycles is of particular importance, as it makes it possible to predict the development of a market system far ahead, in the future, and, therefore, increase its adaptability, absorbing future shocks.

The economic cycle can be represented\r\nas follows (Fig. 2):

In fact, cyclicality is a way of regulating a market economy and changing its sectoral structure.
Although each cycle is individual, none is similar to the other and economic indicators change differently in different cycles, experiencing larger or smaller fluctuations, nevertheless, all cycles have much in common.
Economists distinguish four phases of the business cycle and recognize that they differ greatly in duration and intensity. For example, a recession does not always entail severe and prolonged unemployment, and a cycle peak does not always entail full employment.
The first most important phase of the economic cycle is crisis (recession, contraction, recession), which is characterized by the following features:
excess supply over demand, leading to the accumulation of inventories and a fall in prices;
the sales crisis and falling prices lead to a reduction in production - the most important characteristic of the crisis;
a large number of bankruptcies and collapses;
mass unemployment;
falling wages and living standards;
an increase in the need for money to pay obligations (the general pursuit of money), which leads to an increase in loan interest.
The deepest crisis that the market economy experienced was the crisis of 1929-1933, which affected the USA, Canada, Australia and many countries of Western Europe. During these years, prices fell in England by 58%, in the USA - by 54%, industrial production fell by half, stock prices fell 7 times, investments fell 16 times, the number of unemployed in the USA reached 13 million people, in Western Europe - 17 million people: 80 thousand companies and 900 banks went bankrupt. Real incomes of the population fell by 58%.
It should be noted that crises also carry their own cure. The crisis of 1929 forced the governments of the countries mentioned to make serious attempts to influence economic development and prevent their destructive consequences.
The second phase of the cycle is depression - the economy reaches the “bottom”, the lowest point of falling production. At this phase, the reduction in production and the fall in prices stop, inventories stabilize, loan interest rates decrease (business activity is very low - there is no demand for money), but unemployment remains at a high level. Stabilization of prices creates the opportunity to expand sales and prospects for overcoming the crisis arise.
The third phase - recovery, is characterized by an increase in production, leading to the restoration of the pre-crisis level. Prices are starting to rise, and business activity is increasing. The demand for industrial equipment is growing, and new capital is being brought into circulation. The demand for money increases, which leads to an increase in loan interest rates.
The fourth phase of the cycle is recovery (expansion, boom) - production volume exceeds the pre-crisis level. Prices are rising, and with a general increase in wages, unemployment reaches a minimum level. The economy operates closest to the limit of its production capabilities. Beyond the peak, business growth stops, sales problems arise, production declines, the economy enters a crisis phase, etc.
The cycle itself creates the conditions and prerequisites necessary for the transition from one phase to another. Falling prices and increased competition during the crisis encourage producers to improve production, increasing investment demand. In response to this demand, industries producing investment goods begin to expand, this gives impetus to the development of industries producing consumer goods... The economy is moving into a phase of revival and recovery.
It should be noted that if previously the cycles were regular, then in modern conditions (conditions of a mixed economy) the regularity of fluctuations, the sequence of cycle phases have been disrupted, and some characteristics of the cycle phases have changed. Thus, the transformation of inflation into a chronic phenomenon of a market economy has introduced changes into the classic picture of the crisis. Over the past 25 years, a drop in production has often been accompanied by a rise in prices, i.e. stagflation is observed.
The levels of employment, unemployment, inflation, interest rates, exchange rates and the money supply also change cyclically. However, the main indicators of the phase of the cycle are usually the levels of employment, unemployment and output, since the dynamics of inflation levels, interest rates and exchange rates can vary depending on the factors that caused the recession. A decline in employment and output caused by a decline in aggregate spending is often accompanied by a decline in the average price level and the rate of inflation. On the contrary, a recession caused by a reduction in aggregate supply is often accompanied by an increase in the price level and inflation rate. In both cases, the dynamics of interest rates will be determined by the policy of the Central Bank to regulate the money supply, which, in turn, will cause corresponding changes in the level of the exchange rate.
The cycles and crises of the second half of the 20th century are different from those that occurred before. Firstly, the crisis phase began to be accompanied by an increase in the general price level. Secondly, the depression phase has become shorter, and in some post-war cycles it is quite difficult to detect. Thirdly, the revival phase transitions so smoothly into the recovery phase that it is very difficult to determine the boundaries between them. Fourth, in general, the duration of the recovery phase in the post-war period increased. At the same time, the amplitude of fluctuations in business activity has decreased, i.e. the vertical distance from the lowest or highest point of line F to the trend line in Fig. 1.
So, the general characteristics of all phases of economic cycles are similar to each other, but, as noted above, we will not find two identical economic cycles. In some cases, extraordinary phenomena are observed, such as, for example, an increase in personal consumption during the recession in the United States of 1981-1982, while during the crises of 1973-1975, 1990-1991. Americans' personal consumption declined. The same picture emerges when analyzing statistics that determine the country’s net exports. During the recession of 1981-1982. US net exports fell sharply, while during the recessions of 1973-1975 and 1990-1991. net exports increased.
Diagnosing the phase of the economic cycle is one of the most difficult problems of macroeconomic forecasting, the solution of which is associated with the need to improve the collection and processing of statistical information, the construction of complex indices (like the index of leading indicators), as well as with the development of methods of economic and mathematical modeling. In a transition economy, including the Russian one, these problems become particularly relevant due to the lack of an adequate statistical database and the necessary experience in using macroeconomic management tools.

22. Inflation, its causes and forms. Price indices

Under inflation usually understand an excess of money in circulation, which leads to its depreciation and rising prices for goods and services. Inflation, although manifested in rising prices, cannot be reduced only to the monetary factor. This is a complex socio-economic phenomenon generated by imbalances in reproduction in various spheres of the market economy. Inflation manifests itself in the depreciation of money in relation to gold, goods, and foreign currencies.

Some may be noted Features of modern inflation:

– previously inflation affected the economy of one or several countries, but now the rise in prices is not local, but global in nature;

– modern inflation is not episodic, but continuous, chronic. Currently, prices rise at all phases of the economic cycle, without decreasing at all even during periods of economic growth;

– inflation in different countries develops at different rates, unevenly, spasmodically, which is influenced by internal factors, as well as the degree of government intervention in the economy;

– the nature of inflation has changed: currently, galloping rather than creeping inflation prevails.

Causes of inflation diverse. There are internal and external causes of inflation. Internal reasons determined by the state of the economy of a given country. The most common ones are:

– an increase in government spending that does not lead to an increase in production ( expenses for military purposes, maintenance of the state apparatus);

– state budget deficit. If it is covered by loans from the country's central bank, the amount of money in circulation increases sharply, leading to inflation;

– the presence of imperfect competition in the market. A monopoly or oligopoly first creates an artificial shortage of goods on the market, and then stimulates a reduction in the production of goods through higher prices;

– expenses for social purposes that are inadequate to the capabilities of the nationline economy;

– high degree of monopolization of the economy. Monopolies are not interested in lowering prices and have leverage to maintain them at a high level;

– inflation expectations. When inflation begins, the population plans its behavior in anticipation of a further rise in prices and begins to purchase goods for future use, assuming that their prices will rise even more.

– credit expansion– expansion of lending beyond the needs of the economy, which causes the issue of non-cash money;

– excessive investments in certain sectors of the economy, for example, in agriculture, which do not provide the desired economic effect;

– structural disturbances in the economy – disproportions between accumulation and consumption, supply and demand, government income and expenditure.

TO external reasons relate:

– internationalization of economic relations. The presence of inflation in other countries, through the prices of imported goods, affects the dynamics of domestic commodity prices.

– depreciation of the national currency against the national currencylyuts of other countries. As a result, domestic prices for imported goods rise, and the exchange of foreign currency for national currency requires additional money emission;

– negative balance of payments and trade balances, growth in foreignhis national debt encourage the government to spend foreign exchange reserves to cover them, which contributes to inflation;

– world economic crises, leading to a significant decline in the production of exported products and an increase in prices for natural fuel and energy resources, and as a result to an increase in prices for finished products;

– foreign exchangeforeign trade policy of the country.

Measuring inflation. Inflation is measured by retail price index . Usually, for this purpose, they use a “consumer basket”, in which all goods and services purchased by the average resident of the country for a certain period are “added”, and the prices for them are summed up. In order to determine the change in prices for a month, quarter, year or other period, it is necessary to calculate prices at the end and beginning of this period. The difference between them is inflationary increase in prices. The inflation rate is calculated using the formula:

price index = cost of the market basket in a given period / cost of a similar market basket in the base period * 100%

Inflation rate are determined as follows: the price index of the previous (base) period is subtracted from the price index of the current period, and the difference is divided by the price index of the past (base) period.

There is a simpler way to measure inflation called "rule of magnitude 70". To determine the number of years in which the average price level will double, you need to divide the number 70 by the annual inflation rate.

There are two main types of inflation: demand inflation and supply inflation. Demand inflation arises as a result of an increase in demand in conditions of full utilization of production capacity, and therefore the inability to respond to this by increasing production output.

Cost-push inflation (supply) arises as a result of rising prices due to increased production costs.

Also distinguished tax inflation And price markup inflation. Tax inflation occurs when the government imposes excessive taxes and producers are forced to significantly increase prices. A similar increase in prices occurs when manufacturers raise prices in advance in order to compensate for future losses that cannot be determined in advance.

By inflation growth rate identify moderate (creeping) inflation - price increases are less than 10% per year, galloping – price increases from 10 to 200% per year, hyperinflation– price increases are more than 200% per year, superinflation - prices are rising by more than 50% per month.

According to the degree of balance they distinguish balanced inflation in which prices for most goods and services rise approximately equally and simultaneously, and unbalanced ininflation in which prices rise at different rates for different goods.

Based on predictability, we can distinguish expected inflation which is expected and predicted by the government and the population, and unexpected inflation which is characterized by a sudden jump in prices.

Based on the scale of coverage, they distinguish local inflation, taking place in individual countries, and global inflation covering groups of countries.

According to the nature of the course, they distinguish open inflation characterized by a clear continuous increase in prices, and suppressed inflation arising from fixed “frozen” retail prices for goods and services and a simultaneous increase in monetary incomes of the population. Suppressed inflation is the result of general state control over prices and total administration in the field of pricing.

The industrial (business) cycle is of particular importance in a market economy. Its manifestations in market conditions are especially clear. Numerous studies by economists are primarily devoted to it.

It should be noted that the industrial cycles that took place before the beginning of the 20th century, in the era of free competition, and modern cycles in a regulated market economy, differ significantly both in duration and in the manifestations of imbalance, the depth and scale of the decline in production and living standards of the population . In the 19th century the crises were characterized by significant synchronicity, almost simultaneously affecting all industrialized countries. Their duration ranged from one to two years and was characterized by a drop in production volumes by 5–10%. Crises of overproduction arose when the balance between aggregate demand and aggregate supply was disturbed. The cyclical nature of economic development acted as a mechanism for market self-regulation. When the market became oversaturated, a decline in production occurred, which continued until the accumulated inventories were depleted. This was followed by an increase in production until the next crisis. An important consequence of crises of overproduction was the renewal of fixed capital.

The industrial cycle included the following phases: crisis (recession), depression, recovery, recovery. A complete view of the economic cycle is shown in the figure.

Business cycle model

A crisis- this is a period of a sharp decline in production, i.e., a decrease in output. The crisis begins with a decline in business activity amid falling prices. It indicates overaccumulation of capital. There is an overproduction of commodity capital, which is manifested in the growth of inventories of unsold products; overaccumulation of productive capital, as evidenced by an increase in underutilization of production capacity and rising unemployment; overaccumulation of money capital, i.e., an increase in the amount of money not invested in production.

The general result of the overaccumulation of capital is a fall in prices and profits, a decrease in production volumes, the ruin of enterprises, an increase in unemployment, and a reduction in household incomes. Due to the death of capital in the form of unsold goods, firms experience a lack of funds for current payments, so the loan fee - the loan interest rate - begins to rise rapidly. At the same time, stock prices are falling.

The economic crisis reveals not only the limit, but also the impetus for economic development. It forcibly restores the disturbed proportions and performs a stimulating “cleansing” function. During a crisis, in conditions of reduced prices, incentives arise to increase profits by reducing production costs and renewing capital on a new technical basis.

Depression is characterized by a certain stabilization. The fall in industrial production and prices is stopping. At a certain level, wages and unemployment stabilize. In conditions of low business activity, the demand for money is low, as a result of which the interest rate decreases. During the period of depression, stocks of unsold products are gradually eliminated, and conditions are created for a new recovery.

The recovery is characterized by improved economic indicators. In an effort to increase profits in a low-price environment, entrepreneurs are beginning to replace capital equipment. Production is gradually expanding, employment is growing, unemployment is decreasing, prices are increasing, wages and interest rates are rising. The demand for consumer goods is growing. The revival is entering an upswing phase.

During the recovery period, there is an active growth of all macroeconomic indicators. Rising prices are offset by increased wages and profits. The entire volume of production is absorbed by growing demand, employment increases. After some time, the economy reaches a high point, which is called a boom. A boom is characterized by the expansion of production, the involvement of additional resources, rising costs and, accordingly, prices. At the same time, overaccumulation of capital is gradually emerging again, and imbalances between supply and demand are growing. A crisis comes and the economic cycle begins again.

The modern business cycle differs from the classical one in its shorter duration and smoother cyclical fluctuations. This is due, on the one hand, to the accelerated renewal of fixed capital, which reduced the duration of cycles to five to six years. On the other hand, the state is pursuing an active anti-cyclical policy, which can significantly smooth out fluctuations in macroeconomic indicators during the cycle. Instead of a crisis phase, there may be recession- a slight decline in business activity from the peak to the trough of production reduction - or even a decrease in growth rates without a decrease in absolute production volumes.

The causes of cyclicality in the economy are one of the most difficult problems in economic theory. Various scientists include such exogenous (external) factors as the causes of economic cycles, such as the impact of natural conditions, political instability, and psychological factors: the ratio of optimism and pessimism in the economic activities of entrepreneurs.

Endogenous (internal) factors were most productively studied by K. Marx and J.M.

Does not apply to phases of the economic cycle

Keynes. Underconsumption was identified as the main factor in the crises. The reason for underconsumption, according to Marx, is the exploitation of labor by capital, and from the point of view of Keynes, it is the lack of aggregate demand caused by people’s propensity to save.

Another important factor of cyclicality in the economy is scientific and technological progress.

Domestic scientist N.D. Kondratiev (1892–1938) developed the concept of “large cycles of economic conditions”, or “long waves”. According to it, in the economy, along with medium and short cycles, there are long-term long-wave fluctuations covering a time period from 45 to 60 years. Kondratiev came to this conclusion based on an analysis of statistical data (price dynamics, wages, foreign trade turnover, mining of minerals and metals and other indicators) of the economic development of England, France and the USA over 150 years. As a result of his research, he identified the following long-wave cycles:

Climb	Recession
1789–1814	1814–1849
1849–1873	1873–1896
1896–1920

The scientist considered large cycles as a violation and restoration of economic equilibrium over a long period. They are characterized by the following patterns:

the upward wave is accompanied by major changes in economic life (a change in monetary circulation occurs, new scientific and technical discoveries appear);
the upward wave is accompanied by significant social upheavals (wars and revolutions);
periods of an upward wave of each major cycle are accompanied by a long and sharply identified depression in agricultural production;
During the period of an upward wave of large cycles, the average cycles are characterized by short depressions and intense rises, and during the period of a downward wave the opposite phenomena occur.

Kondratiev’s conclusions were confirmed in the development of economic conditions during the 20th century. The Great Depression unfolded during the downward wave of the great cycle that began at the end of the 19th century. 50 years later, in 1973–1975, against the backdrop of a downward wave, a deep global crisis broke out, accompanied by a devastating decline in production. Economic growth in developed countries in the 80–90s. determined the beginning of a new upward wave of a large cycle. Scientists who studied the long-wave cycle after Kondratiev (J. Schumpeter, S. Kuznets, W. Mitchell, Y. Yakovets) confirmed that transitions from one phase of the long cycle to another are associated with technological revolutions and structural changes in the economy.

To maintain economic stability in society, the state pursues a policy of smoothing economic cycles and mitigating cyclical fluctuations. The most important tools with which the state influences the economic cycle are monetary and fiscal levers. During a crisis and subsequent recession, the state takes measures aimed at stimulating production, and during a recovery, at restraining it. Therefore, in the recovery phase, the cost of credit increases, new taxes are introduced, existing tax rates are increased, accelerated depreciation and tax breaks for new investments are canceled. In a crisis, on the contrary, government measures are aimed at making loans cheaper, cutting taxes, accelerating depreciation and tax breaks on new investments. Thus, the spontaneous market mechanism of economic functioning in the form of cyclical crises is intertwined with conscious government influence on the reproduction process.

Inflation has become an integral element of the modern economic crisis. It interacts with the cyclical movement of the economy and changes the mechanism of the cycle. This change is characterized by a decrease in the “sensitivity” of prices to the crisis narrowing of market demand and an increase in this sensitivity to growth in demand. In other words, the mechanism of modern cycles combines crisis and inflation. In this regard, the anti-cyclical orientation of government policy changed to anti-inflationary.

Business cycle phases

In modern economic literature, there are two approaches to studying business cycles. In the first, the economic cycle is divided into two phases: recession and recovery. Recession is understood as crisis and depression, and recovery as revival and boom.

the decline phase, or recession, which lasts from peak to bottom. A particularly long and deep decline is called depression;

the recovery phase, which lasts from bottom to peak.

Rice. 1.3 two-phase model: 1 - decline (compression) phase; 2 - ascent (expansion) phase

There is another approach, in which four phases are distinguished in the economic cycle: crisis (recession, recession), depression (stagnation), recovery and recovery (boom, peak).

Business cycle phases

Rice. 1.4 four-phase model: 1 - crisis phase; 2 - depression phase; 3 - revival phase; 4 - lifting phase.

The main property of a cycle is fluctuations in GDP growth rates over time as the economic system goes through four successive phases. In the classical cycle, the initial and defining phase is the crisis. It is the most important prerequisite for the progressive development of the economy through the renewal of fixed capital, reducing production costs, improving the quality and competitiveness of products.

Crisis phase. The main manifestation of the crisis is the fall in production volumes and the reduction in the size of GNP. Accordingly, enterprises are not fully loaded, profits are reduced, stock prices are falling, employment is declining, wages are falling, the standard of living of the population is falling, and poverty is increasing. As a result, aggregate demand decreases, in response to this, production and, accordingly, supply are further reduced. In general, this phase is characterized by an excess of aggregate supply over aggregate demand. Disequilibrium also exists in the money market. The money supply lags behind the commodity supply, and a shortage of money arises, especially in the initial stages of the crisis. Therefore, the only thing that can increase during a crisis is the bank interest rate, since the demand for money exceeds its supply. A high interest rate with low profitability, and often unprofitable enterprises, causes low investment activity. In terms of time, a crisis can last from several months to several years, as was the case during the Great Crisis of 1929 - 1933.

Depression phase. This phase is characterized by a halt in the decline in production; reduction of inventories of goods in warehouses; low business activity; an increase in the mass of free money capital. The level of production at this stage of the cycle remains stable, but in comparison with the pre-crisis level it remains very low - there is no growth; the fall in prices stops; unemployment continues to remain high. The depression phase can have a very long period. It can last from several months to several years. For example, which began in 1933. After the Great Crisis, the depression lasted until 1938, almost until the war.

Revival phase. It is characterized by economic revival, some GDP growth occurs, and the demand for labor, loan capital, and new industrial equipment increases. Unemployment is reduced; prices begin to rise; demand increases in the commodity market. The most important thing is that the investment activity of enterprises is intensifying. Usually this phase does not last long, it quickly moves into the next phase.

Rising phase. This phase is also called a boom, as it is characterized by fairly rapid economic growth. At this phase, output exceeds pre-crisis levels. New technology serves as the material basis for updating production, as a result it reaches a new, higher level of development. There is an increase in employment, and in some industries there is a labor shortage. Wages, aggregate demand, sales volume, profits and stock prices of enterprises increase. The interest rate no longer increases, and sometimes even decreases. In short, during the recovery, everything speaks of economic well-being and even prosperity.

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PHASE OF THE ECONOMIC CYCLE

Science » Economics

11/10/2011Aleksandr Minkov

PHASE OF THE ECONOMIC CYCLE, a periodically repeating part of the economic cycle (business cycle), which consists of four successive phases: crisis, depression, recovery and recovery.

Economic cycle, phases and types

In Western economic literature, these phases are called differently: crisis is called depression, depression is called recession, and recovery is called boom. The cycle is therefore composed of the following phases: depression, recession, recovery and boom.

Each phase plays out in deployment. cycle its role, preparing the conditions and prerequisites for its transition to the next phase. In economic cycles that differ in time, their individual phases differ in duration and depth. The main phases of the cycle include crisis and recovery, and the intermediate phases include depression and recovery.

The initial and defining phase of the cycle is the economic crisis, which is characterized by a drop in production volume, prices, profits, and wages to a minimum level. As a result of the reduction in aggregate demand for goods and services, the volume of unsold products and underutilization of production capacity are growing. The reduction in the number of jobs leads to a deterioration in the situation on the labor market and an increase in unemployment in all its forms. Interest rates on loans are falling, and securities prices are falling. While exacerbating socio-economic contradictions, the crisis phase at the same time creates the prerequisites for entering a new stage of economic growth. The physical and moral deterioration of equipment is accelerating, the way is cleared for updating the production apparatus based on new equipment and technology, for various types of innovation.

The depression (recession) phase is characterized by slow or zero growth rates inherent in a stagnant economy. The minimum of economic activity is left behind. In the recovery phase, economic growth rates increase, production volumes, investment and employment increase, approaching the maximum of the previous cycle. A new maximum in the movement of production, investment, employment, prices and profits, interest rates and securities prices is achieved in the expansion phase.

In modern conditions, under the influence of government countercyclical policies, the strengthening of the social orientation of the economies of developed countries, and the globalization of the world economy, the economic cycle is smoothing out. It is expressed in a change in the ratio of the various phases of the cycle, the relative duration and depth of each phase. First of all, this refers to the crisis phase, the duration and depth of which are decreasing. The crisis phase is softening and is increasingly being replaced by a recession phase.

S. A. Khavina.

Economic cycle and its phases

The dominant place in theories of economic cycles is occupied by the problems of manifestation of medium-term economic cycles. They are more studied compared to other types of cycles.

Economic crises recur regularly, at certain intervals. The first economic crisis occurred in 1825. At first, crises recurred at intervals of 10-11 years, and then the period separating one crisis from another shortened and is now 5-7 years.

The period of production movement from the beginning of one economic crisis (or any other phase) to the beginning of another (another phase) is usually called the economic cycle.

As already mentioned in the second paragraph of this chapter, different sources use different names for medium-term cycles: “industrial cycle”, “business cycle”, “capitalist cycle”, etc. These are just different names for the same phenomenon, which is associated with periodic downturns and upturns in the economy over a certain period of time.

In the 19th century and the first half of the 20th century, crises affected mainly industrial production. But now they affect the entire economy as a whole. Therefore, it is quite legitimate to use the concept “economic cycle” in modern scientific and educational literature, as it is more appropriate to the content of this phenomenon.

In the economic literature, the sequence, content and name of the phases of the economic cycle are interpreted differently. Let us dwell on two main options: 1) the Marxist interpretation of this problem; 2) interpretation of the phases of the cycle in American literature.

According to the Marxist interpretation, the economic cycle consists of the following phases: crisis, depression, recovery, recovery (Fig. 17.2).

Crisis in Marxist literature is the main phase of the economic cycle. A crisis is a sharp disruption of the existing balance as a result of growing imbalances. During this phase, there is a reduction in demand and excess supply.

Question 6. The phases of the economic cycle do NOT include:

Difficulties with sales lead to a reduction in production and increased unemployment. The decline in the purchasing power of the population further complicates sales. All economic indicators are declining. There is a fall in wage levels, profits, investments, and prices. Due to the death of capital in the form of unsold goods, enterprises lack funds for current payments, so the loan fee - the loan interest rate - is rapidly growing. Securities prices are falling, and there is a wave of bankruptcies and mass closures of enterprises.

Fig. 17.2. Business cycle phases

Depreciation of goods, unemployment, direct destruction of part of fixed capital - all this means a huge destruction of the productive forces of society. Through the bankruptcy of a mass of enterprises and the destruction of part of the productive forces, the crisis forcibly adapts the size of production to the level of effective demand and restores for some time the disturbed proportions of reproduction.

The crisis ends with the onset of depression.

The depression phase is characterized by the fact that production is no longer declining, but is not growing either, that is, it is in a state of stagnation. Outdated equipment is gradually being eliminated, inventories of goods are being reduced either by destroying them or selling them at reduced prices. Prices, wages, and unemployment stabilize at a certain level. Production of new products begins. At the same time, a mass of monetary capital, finding no use, flows into banks, which increases the supply of free money. But the demand for them is insignificant, and the loan interest rate drops to a minimum.

In general, the depression phase contributes to the mobilization of resources for the subsequent revival of the economy. The renewal of fixed capital begins, which contributes to the transition from depression to recovery, and then to an increase in production.

Revival and recovery as phases of the economic cycle are characterized by the following features: rapid growth of production; an increase in demand for goods and a significant increase in commodity prices; increasing demand for labor, decreasing unemployment and rising wages; growth in the profits of entrepreneurs, growth in demand for loan capital and an increase in loan interest rates.

The revival phase is characterized, in contrast to the recovery phase, by slow growth after some stabilization. This phase, as a rule, is not pronounced, but here all economic indicators reflecting the state of the economy show a positive growth trend. In the recovery phase, enterprises, having recovered from crisis shocks, bring production volume to pre-crisis levels.

In the recovery phase, production exceeds the highest point reached in the previous cycle on the eve of the crisis. This leads to the expansion of trade beyond the effective demand of the population. The preconditions are being created for another economic crisis of overproduction.

Each phase of the economic cycle creates within itself the conditions and prerequisites for the transition to the next phase. The process of emerging from a crisis and transitioning to depression, recovery, and then recovery is the result of numerous factors, of which the main ones are the following:

1) fall in commodity prices. The fall in prices caused by the crisis leads to the fact that goods that had not previously found a market begin to be gradually sold;

2) reduction in production size. During a crisis, production is sharply reduced, which leads to a decrease in the supply of goods on the market. As a result, the size of supply eventually adapts to the size of effective demand. And overproduction is gradually dissolving;

3) destruction of part of the goods. Some goods, left in warehouses during the crisis, are damaged. To eliminate part of the commodity surplus, during the crisis of 1929-1933. a lot of goods were simply destroyed (cotton, coffee, pork);

4) depreciation of elements of fixed and working capital. During a crisis, prices for capital goods fall more than for consumer goods, which leads to an increase in the rate of profit. This stimulates entrepreneurs to make new capital investments. Therefore, the decline in production is gradually replaced by its expansion;

5) falling wages. A reduction in wages during a crisis means lower production costs for entrepreneurs. The rate of profit is growing, which gives entrepreneurs new incentives to expand production.

Already during a crisis and depression, fixed capital is being renewed. Falling prices and increased competition during the crisis force entrepreneurs to find ways to reduce production costs. But in order to reduce costs, they must replace old machinery and equipment with new, more productive ones. When the renewal of fixed capital takes on a massive scale, a transition from recovery to recovery occurs.

The replacement of old machinery and equipment with new ones and the construction of new enterprises entail an increase in demand for means of production and lead to faster growth of the industries producing them. The growth of industries producing capital goods, in turn, leads to an increase in the number of workers employed in them and an increase in demand for consumer goods. This causes an increase in production in industries producing consumer goods. Thus, the massive renewal of fixed capital serves as the material basis for the recovery phase.

However, the renewal of fixed capital does not continue indefinitely. After several years of growth, the re-equipment of old enterprises and the construction of new ones ends, as a result of which the additional demand for means of production, which was caused by the renewal of fixed capital, decreases. New enterprises are coming into operation and releasing significant quantities of goods onto the market. But the abrupt growth of commercial output does not correspond to the growth of effective demand. And after the rise comes a crisis again.

Currently, most economists believe that the periodic renewal of fixed capital is the material basis for the periodic repetition of cyclical processes.

American literature uses a different terminology for the phases of the business cycle. For example, the authors of “Economics” K. McConnell and S. Brew believe that economic cycles have the following phases: peak, recession, nadir, recovery (Fig. 17.3).

Fig. 17.3. Economic cycle according to K. McConnell and S. Brew

During the peak phase, the economy is at full employment and production is operating at or near full capacity. The price level tends to rise and business activity stops growing.

In a recession phase, production and employment decline, but prices resist the downward trend. Prices fall only when the recession is severe and prolonged.

The lowest point of recession, or depression, is characterized by the fact that production and employment, having reached their lowest level, again begin to “climb out” from the bottom.

In the recovery phase, the level of production rises and employment increases, up to full employment.

There are other interpretations of average economic cycles. All of them reflect the real situation in the economy and, with different approaches, reveal unity in the recognition of cyclical development.

Features of the modern economic cycle. In the second half of the 20th century, economic cycles and crises acquired new features and characteristics. The basis for the changes was the modern scientific and technological revolution, the process of further socialization of production and capital, the development of international integration, and strengthening of state regulation of the economy.

The following features of modern economic cycles and crises can be distinguished:

1. Crises began to occur more often, the duration of the cycle decreased from 11-12 years at the end of the 19th - first half of the 20th century. up to 5-7 years now.

2. Modern economic crises are characterized by a smaller reduction in production. For example, in the pre-war period the decline in production in the United States was: in 1920-1921. – 33%, in 1929-1933. – 53%, in 1937-1938. – 33%. In the post-war years, during economic crises, the decline in production ranged from 8 to 14%.

3. The mechanism of the cycle itself has changed. Previously, the main means of overcoming the crisis were falling prices, depreciation of fixed capital, and lower wages. Now the main way out of the crisis has become a reduction in production while maintaining monopoly high prices. At the same time, nominal wages may even increase, restraining the fall in their real level.

4. Previously, the renewal of fixed capital occurred spasmodically in phases of recovery and recovery. Now, in the conditions of scientific and technological progress and intensified competition, the renewal of fixed capital occurs more or less evenly in all phases of the economic cycle.

5. Now the course of economic growth, in addition to cyclical crises, is disrupted by structural crises, currency crises, inflationary processes, etc.

6. If previously the phases of the cycle did not occur simultaneously in most developed countries and the cycle was asynchronous, now the crisis phase occurs in most countries simultaneously.

7. The state began to implement an active anti-crisis policy, influencing the course of the entire cycle. This led to the fact that the boundaries between the phases became fuzzy and blurred. Entire phases began to fall out of the cycle, for example, after a crisis, bypassing the depression phase, recovery may immediately occur.

Economic crises lead to severe socio-economic consequences: loss of material resources, increased unemployment, bankruptcy of small and medium-sized enterprises, and deterioration in the financial situation of the majority of the population. All this creates a tense social situation in society. Therefore, the state influences the economy through its countercyclical policies. The essence of countercyclical policy is to regulate recessions and recoveries. The main task of countercyclical regulation is to prevent crises. For this purpose, monetary and fiscal mechanisms are used.

The higher the pace of economic development, the greater its “overheating” during the recovery stage, the stronger the impending crisis will be. Therefore, in order to prevent “overheating,” the state at a certain point begins to impede high growth rates. Increasing the refinancing rate and reserve contributions makes money more expensive and reduces the flow of investment. Reducing government spending reduces aggregate demand and reduces business activity. This is also due to an increase in taxes, the abolition of tax breaks on investments and accelerated depreciation. In some cases, in order to avoid a deep crisis, the government may provoke its onset ahead of time. Such an artificially caused crisis may be less deep and lasting.

During periods of crisis and depression, in order to stimulate production, the state increases its expenses, reduces taxes and provides enterprises with tax breaks for investments and accelerated depreciation, takes measures aimed at making loans cheaper and reducing reserve contributions. In some cases, the state resorts to a policy of protectionism, stimulating domestic producers and protecting the domestic market from foreign competitors through customs duties and restrictions on the import of goods. Changes in exchange rates also play a stimulating role, increasing the efficiency of exports and limiting imports.

It should be noted that government regulation must combine the achievement of opposite goals: on the one hand, preventing a decline in production and rising unemployment, and, on the other, preventing the development of inflation.

Economic cyclicality of the phase of the economic cycle. Business cycle: concept, phases, causes and types

More on the topic. PHASES OF THE ECONOMIC CYCLE:

22. Inflation, its causes and forms. Price indices

Does not apply to phases of the economic cycle

Business cycle phases

Business cycle phases

PHASE OF THE ECONOMIC CYCLE

Science » Economics

Economic cycle, phases and types

Economic cycle and its phases

Question 6. The phases of the economic cycle do NOT include: