The cyclical nature of the economy is a special form of development with uneven economic growth in different periods, which are called stages or phases of the economic cycle.

The economic cycle includes four phases:

• crisis (recession, recession),
• depression (stagnation),
• revival (expansion),
• a rise ending in a boom or peak.

Thus, economic cycles or waves- These are periodic fluctuations in economic or business activity, during which a market economy passes from one phase to the next.

Let's consider the features of each phase of the economic cycle.

The phases of the business cycle are shown in the figure.

The first phase of the economic cycle is a crisis, i.e. a sharp disruption of the existing balance.

A crisis differs from an imbalance between supply and demand for a particular product or in any sector of the economy in that it arises as a general overproduction, accompanied by a rapid fall in prices, bankruptcies and shutdowns of production enterprises, an increase in interest rates, and unemployment.

A crisis is the most destructive phase of any industrial cycle. This is caused by its surprise for entrepreneurs; they, as a rule, are not ready for it. Therefore, the crisis has the character of a collapse. Before it, the economy was thriving in all respects, everyone was making big profits, and then a crisis began, and the foundations were collapsing not in just one industry, but in all of them at the same time.

In the downturn phase of the economic cycle, demand begins to decline, while supply remains at the same level. Enterprises operate by producing products in larger volumes than required by the current market situation. The market turns out to be overflowing with goods, demand is rapidly decreasing, but production continues, although the size of inventory is already very large. A rapid drop in prices begins, interrupting the mechanism of capital circulation. The crisis of non-payments, lack of cash, and difficulties with sales lead to a belated but rapid curtailment of production, which leads to an increase in unemployment and a decrease in the purchasing power of society, which further complicates sales.

A period of collapses begins, enterprises close, banks “burst”, as loan defaults are widespread. During the crisis phase of the economic cycle, unemployment increases sharply, reaching its critical point. Naturally, in such conditions no one thinks about investment. Firms are unable to pay current payments, as capital is “frozen” in the form of unsold goods.

At this stage of the economic cycle, in a recession, there is a general pursuit of money, so the loan fee - the loan interest rate - is rapidly growing. Stock market crashes and a wave of bankruptcies and business closures mark the end of the crisis and the beginning of the depression. The recession presents such a bleak picture. The actual recession phase in the economic cycle usually does not last long; the crisis looks long-lasting if it is combined with depression.

Depression (stagnation)- This is a phase of the economic cycle in which some stabilization of the situation occurs. “Depression is a period of adaptation of economic life to new conditions and needs, a phase of finding a new equilibrium.”

The crushing fall stops, since there is nowhere else to “fall”. Macroeconomic indicators, prices, wages, unemployment are stabilizing at a certain level. After the decline ends, a growth trend does not appear immediately, since production is carried out on a narrowed base. This is due to the fact that manufacturers are afraid to expand production due to a lack of confidence that there will be sufficient demand for the products produced.

During the depression phase of the economic cycle, confidence in a stable market environment is difficult to restore. Entrepreneurs look around with caution, even after some stabilization of demand, afraid to invest additional funds in their business. This phase is long-lasting and may be the longest in the entire economic cycle. Stagnation can last from several months to several years.

With general stagnation in the economy, only one indicator continues to change: the interest rate is decreasing due to the fact that “surviving” entrepreneurs have free cash due to low production costs, because wages have frozen at the lowest point. If we take the classic version of the economic cycle, then in this phase the interest rate on monetary loans drops to its lowest point within the given cycle.

During the depression stage, prices stabilized at low levels stimulate consumption and the economic cycle continues. As a result of increased demand for civilian goods, demand for means of production also increases. But the crisis showed the insolvency of fixed capital in a technical and technological sense. To renovate it, the first investments are made, and if they are successful, the level of investment begins to slowly increase. Production is starting to slowly pick up. The next phase of the economic cycle begins - the recovery stage.

Revival– this phase of the economic cycle is characterized, first of all, by the expansion of production of means of production. Therefore, the impulse begins with enterprises producing equipment and elements of fixed capital. “The revival phase is a phase of slow growth in production caused by the first successful investments, a gradual increase in prices, entailing an increase in wages, an increase in the level of employment, and profits. The reaction to this is an increase in interest rates.”

A characteristic feature of this phase of the economic cycle is the absence of clear boundaries for the beginning of the phase. This is due to the fact that after a depression, various sectors of the economy begin to emerge from it after different periods of time. During the period of recovery, entrepreneurs dare to take their first steps forward, discovering that the risk is completely justified, and investment yields profit. Production expands following the growth in demand, unemployment decreases, and wages rise. At some point, economic indicators reach pre-crisis levels, and then the next phase of the economic cycle begins - recovery.

It is the achievement of the pre-crisis level of production that marks the end of the recovery and the beginning of the recovery phase of the economic cycle.

Climb– all economic indicators begin to increase at a much faster rate than in the previous phase. Prices begin to rise, but they are compensated by an increase in wages, as a result, the entire volume of output is absorbed by the growing demand of the population. However, in this phase of the economic cycle, the condition must be met that the rate of price growth exceeds the rate of wage growth. The consequence is an increase in employment, and labor resources become the only limiting factor in further development. “The acceleration of economic development can also be seen in waves of innovation, the emergence of a mass of new goods and new enterprises, in the rapid growth of capital investments, stock prices and other securities, interest rates, prices and wages. Everyone produces and trades at a profit.”

Naturally, this cannot continue indefinitely, and at some point the rise phase ends at the highest point of the economic cycle, called a peak or boom. During this phase, discoveries are made that allow the economy to reach a new level within a given economic cycle, but the introduction of new technologies inevitably leads to an increase in production costs, resulting in an increase in prices for manufactured goods without an increase in wages. This leads to a decline in consumer opportunities. The disproportion between supply and demand is growing. The economic boom abruptly turns into a crisis of the entire economic system, the economic cycle ends, and a new one begins.

The paradox of the recovery phase lies in the fact that after the difficult overcoming of the crisis and its consequences, the economy, within the framework of the economic cycle, through the development of crisis factors, is rapidly moving towards a new crisis.

New features of economic cycle phases

Currently, economic cycles and crises in countries with developed markets have acquired new features and characteristics. The foundation for this was the anti-crisis policy of the state, applied in all countries following the capitalist path of development, and the development of international integration, the socialization of production and capital. Currently, the crises in Western countries are different from the Russian crises. The following features of the modern economic cycle can be highlighted.

Firstly, crises have become much more frequent, the duration of cycles has decreased to 5–7 years. At the end of the 19th century and the first half of the 20th century, the duration of the cycles was 11–12 years.

Secondly, the nature of the onset of cycle phases has changed. In the past, phases of the cycle, such as crisis or recovery, occurred in different countries at different times. Due to this, the destructive power of the cycle was less than at present, when the phases of the cycle occur simultaneously in most countries. This is due in large part to the fact that, as a result of the increased integration of national economies, a crisis in one country generates a crisis in other countries. A kind of chain reaction is happening in the business world.

Thirdly, as a result of the policy of countercyclical regulation, the entire course of the cycle changed. Sharp boundaries disappeared, phases began to smoothly transition into one another. This policy also determines the phenomenon of “falling out” of some phases from the course of the cycle. For example, after a crisis, a recovery could immediately occur, bypassing the depression phase (Fig. 2).

Smoothing of economic cycles is the result of the application of countercyclical regulation

Fourthly, since the late 60s. The cyclical crisis is accompanied by rising inflation. Unemployment is becoming chronic and affecting new categories of workers. In fact, a new type of crisis economy has emerged - a stagflationary economy.

Fifth, there has been a change in the nature of crises. After a series of cycles with weak crises and short-term depression or no depression at all, a crisis occurs that covers all spheres and sectors of the economy. The power of the crisis is enormous, and all countries are involved in it.

Features of economic development cycles

An important feature of cyclical fluctuations is the difference in fluctuations in levels of employment and output in industries producing capital goods and durable goods, and industries aimed at producing non-durable goods. The former react to cyclic fluctuations with much greater force than the latter. The reasons for this lie in the following.

1. The purchase of new equipment or durable goods can be postponed, since they are not essential items and demand for them is sharply reduced.
2. In addition, there are a small number of firms in the market for capital goods at the same time, and this oligopolistic nature of the market allows management to quickly reduce the number of employees and the volume of output during periods of recession.
3. At the same time, prices for their products remain approximately at pre-crisis levels.
4. The level of employment and production volumes in enterprises producing non-durable products cannot be subject to strong fluctuations, since the markets for these goods are more highly competitive and firms cannot counteract lower prices by reducing the number of employees and the volume of output.

Economic cycles have never been similar to one another; each of them has its own characteristics.

Cycles may lack some phases; for example, a crisis may be immediately followed by a recovery.

Between crises, the business world does not remain calm. The economy may experience major or relatively minor downturns and disturbances. In relation to economic cycles on this occasion, “German researchers have taken root the term pre-crisis (Vоrkrise) - a short-term phenomenon, but often heralding the approach of a catastrophe.”

There are the following main types of crises:

• cyclic,
• intermediate,
• partial,
• industry,
• structural.

Types of crises in economic cycles

Types of crises	Description
Cyclical crisis	The cyclical crisis is the most profound crisis in its impact. It covers all areas and sectors of the economy. A characteristic feature of this crisis: the disruption of the existing equilibrium causes the organization of production at a qualitatively higher level. As a result, the next cycle will begin on a qualitatively different economic basis. Obsolete equipment is being replaced and new equipment is being introduced; production costs are reduced; the structure of production comes into line with the economic requirements of society.
Interim crisis	The interim crisis does not cover all sectors of the economy; it is local and short-lived. It is a timely response to emerging contradictions and imbalances in the economy. As a result, the revitalization or recovery phase may be interrupted for some time. Intermediate crises are not particularly acute; they smooth out contradictions, softening the cyclical crisis, which turns out to be less deep and destructive.
Partial crisis	A partial crisis can occur both during an upswing and during a depression or recovery. The crisis affects only one specific area. For example, the financial crisis of 1997 affected the monetary sphere in almost all countries, although it began on the stock exchanges of Southeast Asia.
Industry crisis	The industry crisis covers related sectors of the economy. The reasons for its occurrence may be rising prices for raw materials and energy resources, cheap imports, the natural aging of industries, the emergence of new ones, and changes in the industry structure.
Structural crisis	A structural crisis usually lasts for several economic cycles. The need to radically change the structure of production using new technological advances is the main cause of structural crises. Examples of structural crises include the energy, raw materials, and food crises of the 70s and 80s.

The paradox of crises is that in this phase of the economic cycle, not only the limit of development is revealed, but also the impetus for further development of the economy. This is a kind of “stimulant” with destructive properties and consequences, after the onset of which, willy-nilly, we have to create new economic realities.

During the crisis phase of the economic cycle, the motives for reducing production costs first appear sharply and new opportunities are sought for this. Then there is an awareness of the need to update production and economic activities on a new technical and technological basis. Having marked the end of one economic cycle, the crisis begins the next one in this way.

Crisis and depression are always followed by recovery. As a result of crises, the economy does not collapse completely, but moves to a qualitatively new level of development.

Types of economic cycles

In economic life there are a variety of fluctuations that are objective in nature. Of these, four types of economic cycles most commonly used by economists can be identified.

1. Renewal cycles for individual capital elements are 2–4 years.
2. Fixed capital renewal cycles are 7–12 years.
3. Renewal cycles for parts of buildings and structures are 18–25 years.
4. Cycles associated with demographic processes and agricultural production – 45–50 years.

The renewal cycles of individual elements of capital are called Kitchin cycles. These are small cycles that are associated with fluctuations in global gold reserves. Construction cycles are called Kuznets cycles, and they are associated with the periodic renewal of dwellings and certain types of industrial structures.

The main interest for the business world is the Juglar cycles associated with the renewal of fixed capital. This type of economic cycle has other names: business cycle, industrial or production cycle. When studying economic cycles, economists drew attention to the effect of a greater increase in national income production with relatively smaller capital investments. This effect is called acceleration.

The essence of the accelerator is that an increase in demand for consumer goods leads to an increasing demand for means of production, and, consequently, for investment. Acceleration generates, on the one hand, instability in the economy, on the other hand, during periods of recovery and recovery, it contributes to the growth of capital investments, which accelerates the cycle. But in the phases of crisis and depression, due to the existence of the accelerator, the destructive power of the recession increases, because the reduction in investment outstrips the reduction in production.

The accelerator is the ratio of investment to production growth or national income and is expressed by the formula:

Where V is the accelerator, I is investment, D is income or finished product, t is the corresponding year.

The theory of long-term or “long waves” was developed by the Russian scientist N.D. Kondratiev in the 20s. XX century. According to it, in the history of economic development, periods of about fifty years with accelerated or slow development can be distinguished. After analyzing data for 140 years, Kondratiev identified three cycles of economic development with “increasing” or “decreasing” waves.

Upward wave - since the late 80s. XVIII century to 1810–1817

Downward wave – from 1810–1817. until the period 1844–1851

Upward wave - from 1844–1851. until the period 1870–1875.

Downward wave - from 1870–1875. until the period 1890–1896

Upward wave – from 1890–1896. until the period 1914–1920.

Downward wave - from 1914 to 1920.

If we follow his theory further, the lowest point of the downward wave will be right at the period of the Great Depression. And then during a serious crisis in the mid-70s. XX century. Kondratiev explained the existence of large cycles by different periods of functioning of economic goods, the production of which also requires spending different times, especially on the accumulation of capital for their creation. The next breakthrough in scientific and technological progress marks the beginning of a new cycle. Then, during the rise stage, the products of this breakthrough are widely introduced.

If we analyze the long Kondratiev waves, we can notice the following feature: industrial cycles occurring during the period of an upward wave are characterized by long and powerful rises and relatively short and weak depressions. At the same time, industrial cycles of a downward wave have completely opposite characteristics.

Research into the patterns of long-term economic development has made it possible to generalize them into the theory of technological structures.

A technological structure is an integral complex of technologically related industries and corresponding technical and economic paradigms, the periodic process of sequential replacement of which determines the “long-wave” rhythm of modern economic growth.

The chronology of technological structures corresponds to Kondratieff’s theory of long waves; according to this, the following types of economic cycles or waves are distinguished:

1. The first wave (1785-1835) is the first technological structure based on textile production technologies.
2. The second wave (1830-1890) is the second technological structure, formed on the basis of steam engines, railway and water transport based on them, as well as ferrous metallurgy and machine tool building.
3. The third wave (1880-1940) is the third technological structure, the core of which was the electric motor and steel production.
4. The fourth wave (1930-1990) is the fourth technological structure based on the internal combustion engine and petrochemical production.
5. The fifth wave (1985-2035 presumably) is the fifth technological structure, formed on the basis of the semiconductor industry and technologies for the production of microelectronic components, as well as information technologies and biotechnologies.

During each structural crisis of the world economy and each depression that accompanies the process of replacing dominant technological structures, new opportunities for economic success open up. Countries that were leaders in the previous period are faced with a depreciation of capital and the qualifications of those employed in industries of an obsolete technological structure, while countries that have managed to create the groundwork in the formation of production and technological systems of a new technological structure find themselves as centers of attraction for capital released from obsolete industries. Each time a change in the dominant technological structures is accompanied by serious shifts in the international division of labor and a renewal of the composition of the most prosperous countries.

Cyclicality can be considered as one of the ways of self-regulation of a market economy. Cyclicity is the fundamental basis for the development of not only a market economy, but also the entire society as a whole. If cyclicality did not exist, then the development of the entire society would stop somewhere at the level of the Middle Ages.

Literature

1. Bunkina M.K., Semenov V.A. Macroeconomics. – M.: Dashkov and K, 2008.
2. Zhuravleva G.P. Economic theory. – M.: INFRA-M, 2011
3. Galperin V. Macroeconomics. – St. Petersburg: Economic School, 2007
4. Sazhina M.A. Economic theory. – M.: INFRA-M, 2007.
5. Shishkin A.F. Economic theory: In 2 books. Book 1. – M.: VLADOS, 2002.
6. Economic theory. / Ed. V.D. Kamaeva. – M.: VLADOS, 2004.
7. Salikhov B.V. Economic theory. – M.: Dashkov and K, 2014.

The economy of any country, even the most developed one, is not static. Its indicators are constantly changing. An economic downturn gives way to recovery, a crisis gives way to peak growth values. The cyclical nature of development is characteristic of the market type of management. Changes in the level of employment affect the purchasing power of consumers, which in turn leads to a decrease or increase in the price of products. And this is just one example of the relationship between indicators. Since today most countries are capitalist, economic concepts such as recession and recovery are suitable for describing and developing the world economy.

History of the study of business cycles

If you plot the GDP curve of any country, you will notice that the growth of this indicator is not constant. Each economic cycle consists of a period of decline in social production and its rise. However, its duration is not clearly defined. Fluctuations in business activity are poorly predictable and irregular. However, there are several concepts that explain the cyclical development of the economy and the time frame of these processes. Jean Sismondi was the first to draw attention to periodic crises. The "classics" denied the existence of cycles. They often associated the period of economic decline with external factors, such as war. Sismondi drew attention to the so-called “panic of 1825,” the first international crisis that occurred in peacetime. Robert Owen came to similar conclusions. He believed that economic decline occurs due to overproduction and underconsumption due to inequality in income distribution. Owen advocated government intervention and a socialist way of farming. The periodic crises characteristic of capitalism became the basis of the work of Karl Marx, who called for communist revolution.

Unemployment, economic recession and the role of government in solving these problems are the subject of study by John Maynard Keynes and his followers. It was this economic school that systematized ideas about crises and proposed the first consistent steps to eliminate their negative consequences. Keynes even tested them in practice in the USA during 1930-1933.

Main phases

The business cycle can be divided into four periods. Among them:

• Economic recovery (revival). This period is characterized by growth in productivity and employment. The inflation rate is low. Buyers are eager to complete purchases that were put on hold during the crisis. All innovative projects quickly pay off.
• Peak. This period is characterized by maximum business activity. The unemployment rate at this stage is extremely low. Production capacity is at maximum capacity. However, negative aspects are also beginning to appear: inflation and competition are increasing, and the payback period for projects is increasing.
• Economic recession). This period is characterized by a decrease in entrepreneurial activity. Production and investment are falling, and unemployment is rising. Depression is a deep and prolonged decline.
• Bottom. This period is characterized by minimal business activity. This stage has the lowest levels of unemployment and production. During this period, the surplus of goods that formed during peak business activity is consumed. Capital from trade flows into banks. This leads to a decrease in interest rates on loans. Usually this phase does not last long. However, there are exceptions. For example, the Great Depression lasted for ten years.

Thus, the economic cycle can be characterized as a period between two identical states of business activity. You need to understand that despite the cyclical nature, in the long term, GDP tends to grow. Economic concepts such as recession, depression and crisis do not disappear anywhere, but each time these points are located higher and higher.

Properties of Loops

The economic fluctuations under consideration differ both in nature and duration. However, they have several common features. Among them:

• Cyclicality is characteristic of all countries with a market type of economic management.
• Crises are an inevitable and necessary phenomenon. They stimulate the economy, forcing it to reach ever greater levels of development.
• Any cycle consists of four phases.
• Cyclicity is due not to one, but to many different reasons.
• Due to globalization, today's crisis in one country inevitably affects the economic situation in another.

Classification of periods

The modern economy distinguishes more than a thousand different business cycles. Among them:

• Short-term cycles by Joseph Kitchin. They last about 2-4 years. Named after the scientist who discovered them. The existence of the data was initially explained by changes in gold reserves. However, today it is believed that they are caused by delays in firms obtaining the business information necessary for making decisions. For example, consider market saturation with a product. In this situation, manufacturers must reduce production volumes. However, information about market saturation does not come immediately, but rather with a delay. This leads to a crisis due to the appearance of surplus goods.
• Medium-term cycles of Clément Juglar. They were also named after the economist who discovered them. Their existence is explained by the delay between making decisions on the volume of investment in fixed capital and the direct creation of production capacity. The duration of Juglar cycles is about 7-10 years.
• Rhythms by Simon Kuznets. They are named after the Nobel laureate who discovered them in 1930. The scientist explained their existence by demographic processes and fluctuations in the construction industry. However, modern economists consider the main reason for Kuznets' rhythms to be the renewal of technology. Their duration is about 15-20 years.
• Long waves They were discovered by the scientist after whom they were named in the 1920s. Their duration is about 40-60 years. The existence of K-waves is due to important discoveries and associated changes in the structure of social production.
• Forrester cycles lasting 200 years. Their existence is explained by changes in the materials and energy resources used.
• Toffler cycles last 1000-2000 years. Their existence is associated with fundamental changes in the development of civilization.

Causes

An economic downturn is an integral part of economic development. Cyclicity is due to the following factors:

• External and internal shocks. Sometimes they are called impulse effects on the economy. These are technological breakthroughs that can change the nature of farming, the discovery of new energy resources, armed conflicts and wars.
• Unplanned increase in investments in fixed capital and inventories of goods and raw materials, for example, due to changes in legislation.
• Changes in prices for production factors.
• Seasonal nature of harvesting in agriculture.
• Growing influence of trade unions, which means an increase in wages and an increase in job security for the population.

Economic growth decline: concept and essence

There is still no consensus among modern scholars as to what constitutes a crisis. In the domestic literature of the Soviet era, the dominant point of view was that economic downturns are characteristic only of capitalist countries, and with a socialist type of economic management, only “difficulties of growth” are possible. Today, there is a debate among economists as to whether crises are characteristic of the micro level. The essence of the economic crisis is manifested in the excess of supply compared to aggregate demand. The recession is manifested in mass bankruptcies, rising unemployment and a decrease in the purchasing power of the population. A crisis represents an imbalance in the system. Therefore, it is accompanied by a number of socio-economic shocks. And to resolve them, real internal and external changes are required.

Functions of a crisis

Business cycle downturns are progressive in nature. It performs the following functions:

• Elimination or qualitative transformation of outdated parts of the existing system.
• Approval of initially weak new elements.
• Testing the system for strength.

Dynamics

During its development, the crisis goes through several stages:

• Latent. At this stage, the preconditions are just maturing; they have not yet broken through.
• Period of collapse. At this stage, contradictions gain strength, old and new elements of the system come into conflict.
• The period of mitigation of the crisis. At this stage, the system becomes more stable, and the prerequisites for economic recovery are created.

Conditions of economic recession and its consequences

All crises have an impact on social relations. During a recession, government agencies become much more competitive than commercial ones in the labor market. Many institutions are becoming more corrupt, making the situation even worse. The popularity of military service is also increasing due to the fact that it is becoming more difficult for young people to find themselves in civilian life. The number of religious people is also growing. The popularity of bars, restaurants and cafes is falling during the crisis. However, people are starting to buy more cheap alcohol. The crisis has a negative impact on leisure and culture, which is associated with a sharp drop in the purchasing power of the population.

Ways to overcome recessions

The main task of the state in a crisis is to resolve existing socio-economic contradictions and help the least protected segments of the population. Keynesians advocate active intervention in the economy. They believe that economic activity can be restored through government orders. Monetarists advocate a more market-based approach. They regulate the volume of money supply. However, you need to understand that all these are temporary measures. Despite the fact that crises are an integral part of development, each company and the state as a whole must have a developed long-term program.

Economic cycle - regularly recurring fluctuations in levels of production, total income, employment, and inflation. The economic cycle consists of the following phases: crisis, depression, recovery, recovery. The crisis phase that begins and ends the cycle is of primary importance. It expresses the main features and contradictions of the cyclical process of reproduction.

Business cycle phases

A crisis - this is a sharp disruption of the existing balance as a result of growing imbalances. Initially, demand decreases and excess supply occurs. Difficulties with sales lead to a reduction in production and increased unemployment. The decline in the purchasing power of the population further complicates sales. The volume of GNP and the level of production are decreasing. All economic indicators are declining. There is a fall in the levels of real wages, profits, investments, and prices. Due to the death of capital in the form of unsold goods, firms lack funds for current payments, so the loan fee, that is, the interest rate, quickly increases. Securities prices are falling, and there is a wave of bankruptcies and mass closures of enterprises. The crisis ends with the onset of depression.

It should be emphasized that there is a certain time gap between savings and investments. Some time also passes between investments and receiving profits from them. Decisions to increase saving and investment levels are made by different economic agents. When demand is decreasing, it is not advisable to increase the level of investment and expand production.

Depression (or stagnation) : at this phase a certain stabilization occurs. Supply and demand reach a certain equilibrium. The fall in macroeconomic indicators - GNP, the volume of industrial production stops. Prices, wages, and unemployment stabilize at a certain level. The interest rate decreases because business activity is low and the demand for money is relatively low.

Revival : 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 show a positive growth trend. Prices, employment, wages, profits, and interest rates gradually increase. The revival is moving into an upswing phase.

Climb : there is an increase in all macroeconomic indicators. Rising prices are compensated 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 reaches a high point after some time, which is called prosperity (or boom). During this period, demand is actively growing, high employment causes growing incomes of households, which begin to actively buy apartments, cars, expensive home appliances, and pay for vacations and tourism. Estimated future income is used to cover current expenses, meaning most major purchases are made on credit. The economy draws additional resources into production, causing higher costs and higher prices. Disproportions between supply and demand are growing. The boom is again interrupted by crisis.

Development cycles of social production can be classified according to their duration. Short-, medium- and long-term cycles should be distinguished.

Short-term cycles- these are fluctuations in market conditions, changes in the supply-demand relationship under the influence, for example, of seasonal factors. Such cycles are especially evident in agricultural production, hotel and tourism businesses.

Medium-term cycles- these are cycles of reproduction of fixed capital and corresponding changes in market conditions. It should be emphasized that the nature of changes in medium-term economic cycles largely depends on what phase of the long-term cycle they correspond to.

Long-term cycles or “long waves”. The concept of long waves was first proposed by the Russian scientist N.D. Kondratiev in the 20s. 20th century. He suggested that economic development can be divided into successive periods of accelerated and slow growth, with an average duration of about 50 years. N.D. Kondratiev called them “long waves.” Based on a large empirical material containing data for 140 years, he identified and analyzed three cycles of economic conditions containing “upward” and “downward waves.”

Upward wave - since the late 80s. 18th century to the period 1810-1817;

Downward wave - from the period 1810-1817. until the period 1844-1851.

Upward wave - from the period 1844-1851. before the period 1870-1875;

Downward wave - from the period 1870-1875. until the period 1890-1896.

Upward wave - from the period 1890-1896. until the period 1914-1920.

Downward wave - from the period 1914-1920.

Thus, Kondratiev practically predicted the onset of the Great Depression in Western countries, and his theory helps explain the deepening crises in the 60s and 70s. 20th century. He made the following conclusions:

at the beginning of an upward wave, significant changes occur in the economic life of society, which are expressed in profound changes in equipment and technology, in changes in the conditions of monetary circulation, in the strengthening of the role of new countries in the world economy;

during the period of upward waves there are many more major social upheavals and upheavals than during the period of downward waves;

downward waves are accompanied by long-term depression in agriculture;

medium-term economic cycles, falling during the downward period of a large cycle, are characterized by the duration and depth of depressions, the brevity and weakness of upturns; medium-term cycles falling on an upward period are characterized by reverse features.

The main provisions of the theory of N.D. Kondratiev contradicted the ideas that existed at that time about the sad death of capitalism and therefore were not recognized. Kondratiev 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, wave-like development is scientific and technological progress. Its development and, mainly, implementation are discrete in nature. This is explained by the fact that markets periodically reach a state of saturation in which further sales are possible only to replace retired goods. Then the implementation of the results of scientific and technical progress takes place, fundamentally changing both the characteristics of the goods themselves and the technology of their production. Schumpeter calls such changes in the material basis of production “basic innovations.” They stimulate production growth, which first covers the leading industries, and then the entire national economy. A structural restructuring of the economy is underway.

The business cycle permeates everywhere, but affects different sectors of the economy differently. Typically, industries that produce capital goods (buildings, machinery, equipment) and consumer durables are hit harder by a recession. These same industries experience the most favorable impact of the recovery phase; they react relatively less to the production cycle and employment in industries producing goods and non-durable services.

The main reason for the entire economic cycle is the level of total spending. When overall spending is insufficient, then producers' incentives are reduced. Hence the low level of production and employment. Higher levels of total spending boost income and output.

The reasons causing the crisis can be divided into external and internal. External causes include wars, revolutions, political events on an international scale, negative changes in climate (drought, floods), crises in the economies of developed or neighboring countries, shortages of external resources, sudden changes in exchange rates of national currencies, world prices, violations of international contractual obligations. The internal causes of the crisis include the extreme limitation of internal resources, existing 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 downturns and their coverage of various 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 line. This type of crisis, disrupting 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.

Interim crisis , unlike the cyclic one, is not long and deep, does not cover all areas 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 periods 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 banking crisis of 1998. in Russia.

Industry crisis arises as a result of both external reasons (for example, rising prices for raw materials and energy resources at the beginning of the 21st century, cheap imports, influx of emigrant workers) and internal ones (aging industries, emergence of new ones, changes in industry structure). It covers related sectors of the economy.

Structural crisis usually covers 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 are caused by the influence of natural and climatic factors that disrupt the accepted rhythm of economic activity. In particular, a delay in the onset of spring could cause a crisis in public utilities due to lack of fuel.

World crises are determined by the coverage of both individual industries and spheres of economic activity on a global scale, and the entire world economy.

Modern social science knows more than 1380 types of cyclicity. The most frequently mentioned ones are shown in the table below.

Kuznets cycles. In the 1930s, studies of the so-called “building cycle” appeared in the United States. J. Riggolman, W. Newman and some other analysts constructed the first statistical indices of the total annual volume of housing construction and found in them successive long intervals of rapid growth and deep recessions or stagnation. Then the term “construction cycle” appeared, defining these twenty-year fluctuations. After the publication of Kuznets’s work, the term “construction cycle” practically ceased to be used, giving way to the term “long oscillations” in contrast to Kondratiev’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.”

Juglar cycles. First of all, economic science identified a cycle of 7-12 years, which later received the name Juglar. However, this cycle also has other names: “business cycle”, “industrial cycle”, “middle cycle”, “large 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. Crisis of 1847-1848 which broke out in the United States and a number of European countries, was essentially the first global industrial crisis. It was followed by the crises of 1857 and 1866. The deepest crisis was in 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, with the most destructive crisis being the mid-70s.

The 7-12 year cycle was named after C. Juglar (1815-1905) for his great contribution to the study of the nature of industrial fluctuations in France, Great Britain and the USA based on fundamental analysis of fluctuations in interest rates and prices. As it turned out, these fluctuations coincided with investment cycles, which in turn initiated changes in GNP, inflation and employment.

Kitchin cycles(inventory cycles). Kitchin focused on the study of short waves of 2 to 4 years, based on the study of financial accounts and selling prices of inventory movements.

Kondratieff cycles. The first attempts in the field of creating the theory of “long waves” were made 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. Kondratiev (1892-1938), who published several seminal works in this field. He presented the results of his research concerning the dynamics of commodity price indices, interest rates, rent, wages, and production of the most important types of products for a number of developed countries from 1770 to 1926.

Kondratiev associated the beginning of the “great” rise with the massive introduction of new technologies, with the involvement of new countries in the world economy, with changes in gold production volumes. At the same time, the general 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 rising prices. During this period, unemployment decreases, wages and labor productivity increase. These processes affect the entire economy and change people’s lifestyles. Evidence that the economy is approaching the top point of a large cycle is the lack of certain goods that begins against a background of abundance, shifts in the structure of income distribution, rising production costs, and slowing profit growth. A situation now known as stagflation arises.

There are various explanations for the reasons for the depletion of ascent energy. Some see them in a noticeable increase in consumption rates, others in a change in the purchasing power of money, while others associate the achievement of a “peak” with the life cycle of products and industries, the creation of which was a consequence of major innovations of past years.

Each “big” rise is followed by a fairly short period when the economy seems to be preparing for the upcoming long recession, but at the same time the appearance of prosperity remains: people are still full of hope and easily take on debt. Since the real situation is no longer the same, debt is piling up, which threatens collapse at any moment. This inevitably happens, and the impulse can come from an insignificant event. Kondratiev especially emphasized the depressed state of agriculture as one of the main obstacles to a long recession.

Kondratieff associated the rise of the first big cycle with the industrial revolution in England, the second with the development of railway transport, the third with the introduction of electricity, telephone and radio, and the fourth with the automobile industry. Modern researchers associate the fifth cycle with the development of electronics, genetic engineering, and microprocessors.

cyclicality economic development kazakhstan

In fact, economic development does not occur along a straight line (trend) that determines economic growth, but with a constant deviation from the trend, with recessions and ascents, i.e. cyclically (Fig. 1). Business or economic cycles (business cycle) - periodic ups and downs in the economy, as well as fluctuations in business activity. These fluctuations are unpredictable and irregular, so the term “cycle” is used here rather arbitrarily.

The cycle has two extreme points:

• Peak point, which corresponds to the maximum of business activity.
• The bottom point (trough), corresponding to the minimum of business activity, i.e. maximum decline.

Typically, economic cycles are divided into two phases. The first phase is called the recession phase and lasts from peak to bottom. With a long and deep decline, depression occurs. The second phase is called the recovery phase, and it continues from the bottom to the peak.

In addition, there is another approach that divides economic cycles into four phases. However, extreme points are not identified here, since it is believed that when the economy reaches a maximum or minimum of business activity, it remains in this state for a sufficiently long period of time. So:

• Phase I – boom, characterized by maximum activity in the economy. This is a period of overemployment and inflation. In this state, the economy is called an “overheated economy.”
• Phase II – recession (recession or slump), is characterized by a gradual return of the economy to the trend level, a reduction in the level of business activity, actual GDP approaching its potential level and a fall below the trend, which transfers the economy to the third phase.
• Phase III – crisis (crisis) or stagnation (stagnation). There is a recessionary gap in the state of the economy, in which actual GDP is lower than potential. This period is characterized by underutilization of economic resources, i.e. high unemployment.
• Phase IV is a revival or recovery, in which the economy begins to gradually emerge from the crisis state, and actual GDP grows to the potential level, after which it exceeds it, tending to reach a maximum, which returns the situation to the first phase.

Causes of the business cycle

Economic theory notes that economic cycles arise due to a variety of phenomena: the level of solar activity, revolutions, military coups, presidential elections, high rates of population growth, insufficient consumption, investor sentiment, price shocks, technical and technological innovations, and much more. In fact, all the reasons ever listed can be combined into one - the discrepancy between aggregate supply and demand, as well as aggregate spending and output. In this regard, the cyclical development of the economy can be explained in several ways. Firstly, this is a change in aggregate demand with a stable value of aggregate supply. Secondly, this is a change in aggregate supply with a stable value of aggregate demand.

Let's say that economic cycles arise due to changes in aggregate demand or consumption. Let's look at an example of how these indicators behave at each phase of the cycle (Fig. 2.(a)).

The boom phase is characterized by the arrival of a moment at which it will not be possible to sell the entire volume of production produced, i.e. total expenditure will be less than output. As a result, overstocking occurs, which leads to an increase in inventories at enterprises. This in turn leads to a curtailment of production, which causes the dismissal of workers and an increase in the unemployment rate. As a result, total income and, therefore, total expenses decrease. First of all, such economic cycles manifest themselves in a decrease in demand for durable goods and a fall in the demand of enterprises for investment, which leads to a decrease in short-term interest rates. Typically, in such conditions, the long-term rate increases due to bond sales in an environment of reduced income and lack of cash. A decrease in total income reduces tax revenues to the state budget, which leads to an increase in the value of government transfer payments and a state budget deficit. Enterprises try to sell their products by reducing prices, which leads to deflation.

Soon, enterprises are faced with a situation where products are not sold even at lower prices. In this case, the company can resort to several solutions. Firstly, this is the acquisition of more productive equipment, which will allow the production of goods to continue at lower costs. Thus, the company will be able to reduce the price of products without thereby reducing the amount of profit. Secondly, the enterprise can engage in the production of a new type of goods, which requires technical re-equipment. In both cases, it is possible to achieve an increase in demand for investment goods, which will expand production in industries that produce investment goods. As a result, there is a revival in this area, which leads to an increase in employment, growth in enterprise profits, and an increase in total income. As incomes rise, so does demand in industries that produce consumer goods, and the production of these goods also expands. These processes are gradually covering the entire economy. Thus, economic cycles move into the recovery phase.

With an increase in demand for durable goods and investment, the cost of credit increases, i.e. short-term interest rates rise. At the same time, there is a decrease in long-term interest rates, as demand for bonds grows and securities prices rise. The price level is rising. Tax revenues increase. Transfer payments are being reduced. The state budget deficit is decreasing, which makes it possible to create a surplus. With the rise of the economy and the growth of business activity, economic cycles move into the phase of “overheating” of the economy, which leads to another recession.

So, economic cycles are based on changes in investment spending, since investment is the most volatile part of aggregate expenditure (aggregate demand).

In Figure 2, business cycles are represented graphically using the AD-AS model. Figure 2 (a) depicts an economic cycle with a change in aggregate demand (aggregate expenditure), and Figure 2 (b) depicts an economic cycle with a change in aggregate supply (aggregate output).

It is worth noting that in conditions when the cause of a recession in the economy is a decrease in aggregate supply, basically all indicators behave in the same way as in the case of a reduction in aggregate demand (aggregate expenditure). The exception is the general price level, which increases as the recession deepens. This situation is called “stagnation” and is characterized by a simultaneous decline in production and an increase in the price level. Such a recession is usually overcome through investment, which increases the stock of capital in the economy and allows the aggregate supply to grow.

Business cycle indicators

The economic growth rate (rate of growth – g) is the main indicator of the cycle phases. Its calculation is carried out using the following formula:

g = [(Yt – Yt1) / Yt1] x 100%, where

Yt – real GDP of the current year,

Yt1 – real GDP of the previous year.

Thus, economic cycles are characterized by this indicator as the percentage change in real GDP in each subsequent year compared to the previous one. If this value is positive, then economic cycles are in the boom phase; otherwise, they are in the decline phase. This indicator is calculated once a year, and the value is used to characterize the pace of economic development.

In addition, economic cycles at different phases are characterized by different indicators, which depend on the behavior of economic quantities. Among them are:

• Pro-cyclical indicators that rise in the boom phase and fall in the recession phase (sales volume, total income, real GDP, firm profits, import volume, transfer payments, tax revenue).
• Countercyclical indicators that rise in the recession phase and fall in the recovery phase (the value of firms' inventories, the unemployment rate).
• Acyclic indicators, the value of which is not related to the phases of the cycle, since they are not cyclical in nature (export volume, depreciation rate, tax rate).

Types of economic cycles

Economic cycles are classified depending on their duration:

• centennial cycles, whose duration is one hundred or more years;
• “Kondratiev cycles”, which last 50-70 years. They got their name from the outstanding Russian economist N.D. Kondratiev, who developed the theory of “long waves of economic conditions”;
• classical cycles, lasting 10-12 years and characterized by massive renewal of fixed capital;
• Kitchin cycles, whose duration is 2-3 years.

Thus, economic cycles are distinguished into different types based on the duration of operation of a particular physical capital in the economy. For example, centennial cycles are determined by the emergence of scientific discoveries and inventions that produce a real revolution in production technology. Long-wave Kondratiev cycles are based on the service life of industrial and other structures and buildings, i.e. on the passive part of physical capital. “Classical” cycles are characterized by a duration of 10-12 years, during which physical wear and tear of the equipment is observed, i.e. active part of physical capital. It is worth noting that modern conditions put moral wear and tear rather than physical wear and tear in first place when replacing equipment. In other words, over time, more productive and advanced equipment appears, resulting in the need to replace outdated equipment. As a rule, new technical and technological solutions are developed every 4-6 years, but this cycle is gradually shortening. Also, many economists note that the duration of economic cycles depends on the massive consumer renewal of durable goods, which occurs at intervals of 2-3 years.

In modern economics, it is noted that economic cycles currently can be very diverse in terms of the duration of the phases and the amplitude of fluctuations. First of all, it depends on the causes of the crisis and the characteristics of the economy of a particular country (the degree of government intervention, the share and level of development of the service sector, the nature of economic regulation, the conditions for the development and application of the scientific and technological revolution).

It is very important to distinguish between cyclical and non-cyclical fluctuations. In this regard, economic cycles are characterized by changes in all indicators and coverage of the entire industry or sector. In turn, non-cyclical fluctuations are accompanied by changes in business activity only in certain industries that are seasonal in nature, and only some economic indicators change.

Economic cycle- a special type of periodic fluctuations in economic activity, consisting of repeated expansion and contraction of the economy, which is accompanied by fluctuations in the level of business activity, production, employment, price level and others. Economic cycles may vary in duration, intensity and other parameters, however, the first researchers of cyclicality noticed that all cycles have the same clearly defined stages (phases).

Types of economic cycles

Economic cycles are classified depending on their duration:

• centennial cycles, whose duration is one hundred years or more;
• "Kondratiev cycles", which last 50-70 years. They received their name from the outstanding Russian economist N.D. Kondratiev, who developed the theory of “long waves of economic conditions”;
• classical cycles, lasting 10-12 years and characterized by massive renewal of fixed capital;
• Kitchin cycles, whose duration is 2-3 years.

Business cycle phases

• Peak- This is the highest point of growth in the country’s business activity. At this stage of the economic cycle, unemployment is approaching minimum levels, and the economy is at its maximum capacity and all the country's resources are used.
• After the peak there always comes recession(depression), which is characterized by a gradual reduction in production volumes and a decline in business activity. or a recession in the economic cycle is recognized by economists only when the period of stagnation lasts more than six months. At this time, unemployment is rising and industry is extremely weak.
• Bottom- the lowest point of the economic cycle decline, which foreshadows its imminent end. True, there are exceptions: the Great Depression of the 1930s is an example of this.
• Business cycle upturn reflects the flourishing of the country's economy and is accompanied by an increase in employment and production.

What are the causes of the business cycle?

The reasons for the cyclical development of the economy can be divided into external and internal.

External reasons:

• wars, due to which the economy is restructured to produce military products, attracts additional resources and labor, and at the end of hostilities there is a recession;
• the impact of some other external factors, for example, the so-called oil shocks, when oil-producing countries united into one cartel - OPEC - and sharply raised oil prices, which caused the biggest global crisis in the post-war period in 1974-1975, in which In the USA, the decline in production lasted 16 months and amounted to about 5%;
• major innovations (railroads, cars, electronics) that have a great impact on investment, production, consumption, and price levels.

Internal reasons:

• governments: a large amount of money creates an inflationary boom, and an insufficient amount of it reduces investment and leads to a decline in production;
• a change in the ratio of aggregate supply and aggregate demand, when, for example, radically new goods (personal computers) appear and demand switches to them, and manufacturers of old goods (typewriters) have to close production and transfer resources to other industries;
• a reduction in production caused by the release of marketable goods, that is, the accumulation of large inventories due to low demand or high prices, when trade abandons goods that it cannot sell and aggregate supply exceeds aggregate demand.