Economic cycle, Economic cycle and crisis as economic categories, Models and structure of economic cycles - Macroeconomics

Economic cycle

Economic cycle and crisis as economic categories

Economic cyclicity is an objective form of the development of a market economy, which is a wavy movement of the economic conjuncture (business activity) with the regular alternation of its ups and downs.

Precisely cyclicity acts as one of the main forms of disturbance of macroeconomic equilibrium.

The economic cycle refers to the movement of the economy from one stable macroeconomic state to the other.

The basis of the economic cycle is periodically arising economic crises. With a crisis ends one period of development and a new one begins. Without a crisis, there would be no cycle, and the periodic recurrence of the crisis gives the market economy a cyclical character. Thus, economic cyclicity appears as a special pattern and principle of the functioning of the market system of the economy.

Considering cycles as a sign of macroeconomic instability of the market, it should be borne in mind that they are expressed in the organic unity of periodically repeating processes not only breaking the equilibrium state of the economy, but also its subsequent natural recovery. Without economic shocks (crises), the market system could not develop. Its peculiar pulsation of entrepreneurial activity is manifested at the macro level. It consists in a combination of narrowing and expanding social reproduction, predetermines ultimately the rhythm and dynamism of the life of the market.

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Each crisis ripens in the phases of recovery and recovery. The economic crisis reveals the overaccumulation of capital, which appears in three forms: the overproduction of commodity capital (the growth of unrealized output), the overaccumulation of productive capital, and the overaccumulation of money-capital. The overall result of the overaccumulation of capital is the growth of production costs, a drop in prices and, therefore, profit.

Models and structure of economic cycles

As already noted, one of the signs of a market economy is its cyclical nature, i.e. periodic fluctuations in economic activity, expressed in a fairly regular recurrence of recessions and production upsurge. This alternation of modern economic science describes using two basic models of the business cycle: two-phase and four-phase.

The two-phase model of the business cycle consists of phases (see Figure 5.2, a ), which are called recession (recession) and recovery (expansion). The economic cycle begins at the point A and ends in A 1. There are two periods in this model: the first is characterized by a steady decline in GDP (the AB line on the curve), the second is a sustained increase in GDP (segment B A 1).

Two-phase (a) and four-phase (b) models of the economic cycle

Fig. 5.2. Two-phase ( a ) and four-phase (b) business cycle models

The four-phase model of the economic cycle, usually called classical, includes the phases of crisis, depression, revival and lifting (Figure 5.2, b ). These segments correspond to the segments of the curve: the crisis is the AB, section of the depression - BB 1, the revival is < A 1 A 1 rise - A 1 < strong> A 2. Note that this ideal graphic representation of the dynamics of the economic conjuncture can be very different from the actual processes in the economy.

According to the model in Fig. 5.2, b the crisis is the most important phase, since it is during this period that the basic proportions of reproduction that were broken during the previous economic development are revealed. Crisis is manifested through a general overproduction of products that do not find demand and sales. Overproduction leads to a crisis first in the sphere of circulation - in the stock market and in monetary circulation, then in trade, and only then it hits production. Objectively, the crisis plays a health-improving role. He eliminates inefficient enterprises and restores the ratio between the volume of goods produced and the money supply.

The Depression phase is characterized by a low level of business activity, closure of enterprises, rising unemployment, lower prices due to the release of a large number of economic resources, while the economy reaches its "bottom". The only way to adjust to such a conjuncture may be to reduce costs by increasing labor productivity, which in turn requires modernization of production. The latter requires investments that generate the multiplier effect. The multiplicative effect causes the growth of incomes and aggregate demand. Thus, depression gradually turns into recovery.

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The revitalization phase is characterized by a steady increase in output. In this phase, the cumulative output reaches the level corresponding to the maximum in the previous cycle (point A 1), price growth begins and the number of unemployed decreases. The production of investment goods is growing, which stimulates a further increase in demand for consumer goods. The economy goes into a recovery phase.

In the Recovery phase, processes that are characteristic of the previous boom are repeated at a higher level. All enterprises operate at full capacity, there is no unemployment.

There is inflation. Overproduction of goods that do not find demand and sales, again serves as the cause of the next crisis.

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