Economic processes represent a delicate balance between supply and demand, total production and sales. The more stable this equilibrium, the more harmoniously the development of the national economy takes place, and the welfare of the population grows.
But there are fluctuations in the economy of a country with a market system of trade relations. They are cyclically repeated. Such a movement determines the phases of the economic cycle. Any trend in the development of national management goes through these stages. Given such a movement, it is possible to more accurately predict the financial and economic state of the state at different times and adjust the negative consequences of possible leaps.
Cycling
The phases of the economic cycle exist due to the uneven processes in the national economy. Rises are followed by recessions, and vice versa. The sequence of phases of economic development is cyclical. Beginning in 1825, according to this scenario, each country moves. It was this year that the first financial and economic large-scale crisis erupted.
Production first expands and then freezes. Sometimes the decline in business activity is simply enormous. Growth gives way to a phase of recession in the economic cycle. This is characteristic of any movement of a trend in the welfare of a country's economy. This movement is called cyclical. It has a characteristic feature. The movement of the cyclic function occurs in a spiral, and not in a circle. Therefore, the general trend leads to an increase in the welfare of society.
What is the business cycle?
The theory of economic cycles explores the behavior of the system at various points in the development curve of national economy. This allows you to establish the causes of fluctuations and predict them in the future.
The economic cycle is the main object of the theory of development of national economic activity. It represents fluctuations in activity indicators. These include GNP, total sales, price level, unemployment, number of investments, capacity utilization.
In one cycle, the trend development curve goes through certain stages. These are phases. Their economic cycle has 4 main points: boom, recession, crisis, recovery. Cyclicity contributes to the regulation of the processes of the system and their compliance with the changing conditions of housekeeping. All vibrations are different. But loops have a lot in common.
Reasons for fluctuations
The theory of economic cycles studies the causes that can cause system fluctuations. There are many factors that can upset the balance. These include natural fluctuations, wars, revolutions, elections, insufficient consumption, and population growth. The mood of investors, the availability of technological innovations, and innovations are also important.
All existing causes can be reduced to one. This is a mismatch between aggregate demand and offer. One factor undergoes change, and the second remains unchanged. Because of this, the phases of the cycle arise, which are characterized by certain qualities.
Activity phase
One of the phases of the cycle is the financial and economic crisis. It is also called contraction, recession. The crisis has certain features. Initially, consumption drops. In this case, the supply is growing, stocks are accumulating. To implement them faster, the company is forced to reduce the price. Then production volumes fall. Many companies go bankrupt or crash. Reducing production leads to unemployment and lower incomes.The standard of living is getting worse. Ordinary people and organizations begin to look for sources of additional financing. Therefore, the credit rate is growing, the fee for using borrowed capital.
The crisis of 1929-1933 was recognized as the most famous recession in the economic cycle. It has covered many countries and has led to a real decline in population incomes by 58%.
Depression
The peak of the crisis is observed in the phase of reaching the bottom - the lowest point of decline in production activity. It is also called depression.
The recession phase of the business cycle ends. There is a turning point. The price level is stabilizing, and the decline in production is halting. Stocks of companies are returning to normal, and the loan process is stabilizing. Business activity at this point is so low that even the demand for borrowed capital falls.
At the bottom of the cycle, the largest unemployment rate. Overcoming the crisis contributes to price stabilization. The growth process begins at this point.
Revitalization phase
Economic growth occurs in the recovery phase. There is a gradual increase in production. The business activity of enterprises is increasing, people are getting more salaries, and new jobs are opening up.
The population has increased purchasing power. This leads to higher prices. To meet the increasing demand, companies are purchasing new equipment. Because of this, the need for money is increasing. Loan interest rising again.
In this period, the economy is inexorably approaching the pre-crisis level of development. Since cyclicity is a development process, the growth phase will soon bring the national economy to the line it reached in the previous cycle. And the last stage begins.
Boom phase
The phase of recovery of the economic cycle leads the system up. It reaches the pre-crisis level of development and exceeds it. This stage is called expansion, expansion, boom. At this time, unemployment is minimal. There is an increase in household incomes. Accordingly, the purchasing power of enterprises set the highest prices for their products. Production takes place at the limit of its capabilities. Demand exceeds supply.
This continues to the highest point of the cycle. In it, the price is set at such a high level that consumption begins to decline. There are sales problems again. This is the beginning of a new phase of the business cycle. He is entering a recession point.
All these processes contribute to the appearance of cyclicity. However, the regularity of such fluctuations is characteristic only of a market economy. In a mixed business management system, the sequence is broken. Some phase features have also undergone changes.
Varieties of cycles
The sequence of phases of the economic cycle is most often the same. But the length of the period itself, during which there is a complete change of points on the business activity curve, is different. There are centennial, classic, short and long cycles.
In the first case, the phases replace each other with a duration of more than a century. Long cycles include 50–70 years. Classical varieties last 10-12 years. If the decline in business activity of the long and medium cycle coincides, the most destructive processes for the economy occur.
Average fluctuations are associated with the massive renewal of fixed capital. The shortest cycles last only 2-3 years.
The allocation of different types of wavelengths associated with the use of various types of capital in the economy. The duration of the phases is very different. It depends on the causes of the crisis, as well as on the characteristics of the country.
It should also distinguish between cyclic and non-cyclic vibrations. In the first case, all indicators in existing sectors change. Non-cyclical fluctuations affect only a few industries and economic indicators.Their nature is local and is associated with other reasons that do not affect general business activity (for example, seasonal goods, increased demand before the holidays, etc.).
Having studied the phases of the economic cycle, one can make more adequate forecasting in the field of fluctuations in business activity. This helps to reduce the destructive nature of the crisis and raise the line of production growth.
