The economic cycle

The economic cycle is one of the key concepts of the history of the development of economic relations. Public production is characterized by regular fluctuations, which are repeated after a certain period of time.

For the first time such economic fluctuations attracted the attention of H. Clark - an English economist, who stated that the intervals between economic crises are not accidental at all. In the development of his ideas, a great contribution was made by the Russian researcher, N.D. Kondratiev.

The theory of the economic cycle is based on the change of the four successive phases: crisis - depression - revival - peak.

The crisis is a violation of the balance of the economic system, which leads to a decline in production and its shutdown. In market relations, this is expressed in a crisis of overproduction, which results in a sharp drop in prices. An example of this phase can serve as a crisis1929-1933, when prices in the US fell by more than 50%. The volume of production is declining, unemployment is increasing, the incomes of the population are decreasing and, accordingly, the effective demand for goods.

Depression is a period during which excesses of goods gradually diverge at reduced prices or even deteriorate. Sales are gradually reviving, and the drop in prices stops. An insignificant increase in the volume of production begins, but the trade is still not going fast enough. Capital concentrates in banks, not finding use in production and trade. This leads to an increase in the supply of money and a decrease in the rate of loan interest. The economic cycle enters the stage of recovery.

The revival is characterized by the restoration of the pre-crisis output, the rise in prices and profits of enterprises, and the wages of workers. Gradually, the level of production and employment of the population return to pre-crisis levels, reaching their peak.

The peak is a full load of production, the maximum possible employment, a high level of prices, wages and interest.

The economic cycle is a rather broad concept. There are many types of it. Most often, the following four are used in the theory.

The short-term Kitchin cycle (3-4 years) - is associated with fluctuations in gold reserves in the world and the laws of money circulation. Medium-term cycle (10-20 years) of Juglar (industrial) - is connected with processes of the credit sphere, which influence investment processes; Kuznets (construction) - with periodic updates of various production facilities. Long-term (45-60 years) Kondratieff cycle - is associated with the use of innovations.

Economists in different ways determine the causes that cause a change of cycles. There are three approaches to explaining this phenomenon.

The first is based on the fact that the economic cycle is due to factors not related to the economic system itself. Mostly, fluctuations in production are affected by natural phenomena and political events. The second considers the cycle as an internal phenomenon of the economy. The main factor influencing the change in the state of the economy, with this approach is the cyclical nature of the renewal of the fixed capital involved in production. Declines and ups are affected by depletion of investment, changes in the money supply, a decrease in the multiplier effect, renewal of capital, etc. The third approach sees the reason for the fluctuations in the interaction of internal economic factors with the external environment. The latter are considered as primary, which provoke the beginning of the action of internal factors. The main external factor is the state.

Thus, the economic cycle is a special type of fluctuations in economic activity. Changing cycles leads to compression and expansion of production, business activity, employment and other indicators. Cycles vary in intensity, duration, and other characteristics, but they all share the same phases.